Thinking of a Gold IRA Rollover? Here are some things you need to know

If the gold IRA rollover has only been popular for the past decade or so, it hasn’t always been the case. However, throughout history gold has been the “gold standard” since Egyptians first smelted it in 3,600 BC. It has been used to express love and the ultimate commitment in the form of gold wedding bands. Wars have been fought over gold and the course of entire civilizations have changed because of it. The Americas, for example, were first explored primarily by those in search of gold, even including a fabled city of gold. Even our idea of paradise has streets paved with gold.

Today, gold continues to be a symbol of wealth and prosperity and this is something that is understood by people who choose to go forward with gold IRA rollovers. The reasons why it always has been so valued are myriad, but primarily it is due to gold’s scarcity. Some have estimated that all the gold ever mined and that is now in existence above the ground would create a cube of only 20 meters by 20 meters by 20 meters in size. Every necklace, tooth crown, ring, coin, or bullion brick would fit into a box about as tall, long, and wide as the Washington Monument.

Because of its scarcity and value, investing in gold is seen as a solid hedge against the vagaries of the marketplace and the unknowns of the world of paper currency. That is why turning a 401k into a gold IRA rollover is becoming more and more popular among investors who want to diversify and protect their retirement accounts. Gold is seen as good protection against the possibility of monetary devaluation, inflation, or deflation, which often happen as a result of risky governmental policies and overspending. Stock market volatility is another reason for investing in the security that a gold IRA rollover represents.

Can a gold IRA rollover protect you from financial collapse?

Consider the recent history of the New York Stock Exchange as viewed through the lens of the Dow Industrial Average to understand the inherent value of putting your money through a gold IRA rollover. In October of 2007, the Dow reached an all-time high of 14,164. As the Great Recession of 2008-2009 evolved, however, the Dow fell to 11,000 by April 2008, which many experts said was the market’s bottom. The Dow continued to drop, though, hitting a painful low of 7,552 by that November.

The plummeting of the Dow was indeed painful for investors, particularly those whose retirement funds were wrapped up in stocks. Those who went through with a gold IRA rollover though, didn’t even break a sweat through it all. Many suffered a complete loss of any value on their investment and some saw the crash eat into their original principle. Throughout this period, investors rushed to get out of the market, solidifying their losses that up until then had only been on paper. Had they stuck it out, regardless of their fears, they would have seen the stock market more than rebound to reach new heights of a Dow that is now over 17,000.

If that was not enough of a rough ride for investors, some experts are predicting the stock market is liable to crash again in the next year or so, which makes the gold IRA rollover process very attractive at the moment. U.S News & World Report magazine recently warned that the recent bull market may be reaching its end. It suggested looking into diversifying into alternative investments, potentially including precious metals as in a gold IRA rollover. This is a heads up particularly for those nearing retirement who cannot withstand a large drop in the value of their portfolio.

The advantages of a gold IRA rollover

Certain gold coins can be used as part of a gold IRA rollover

Certain gold coins can be used as part of a gold IRA rollover.

Enter the gold IRA rollover. By shifting a 401k or other retirement vehicle into gold investments, you can protect yourself against such dramatic shifts in other investments. In fact, when gold prices rise, that is a signal of the health of the economy, according to former Federal Reserve Chairman Ben Bernanke. The reason people turn to gold IRA rollovers, he said, is to protect against tail risk, which are outcomes that are “really, really bad.”

Gold prices tend to rise when the economy is doing poorly or when there may be some threat to international economic stability such as wars or oil supply disruptions. At these times, investors buy up gold (either as stocks or as part of a gold IRA rollover) as a guard against economic disruptions or weakening currencies.

In 2011 alone, the price of gold rose 32.8 percent, according to the U.S. Bureau of Labor Statistics. That followed double-digit increases in each year, beginning in 2008, as investors bought up precious metals via gold IRA rollovers or otherwise as a vehicle that would maintain the value of their assets as money supplies tightened. This, in turn, pushed the price of gold even higher and it jumped by more than 50 percent in September 2011 alone.

In a different scenario, the last time the U.S. suffered high inflation, gold showed its true value as a hedge investment and gold IRA rollover asset by showing a return of more than 130 percent compared with an average stock market return of negative 12 percent. In the past 10 years, even with times of low inflation, gold has increased in value by more than 400 percent.

In addition to being a hedge against economic upheavals, retirement investing in a gold IRA rollover also can save on the tax end. The highest tax bracket when you remove funds from a standard 401k or IRA is 39.6 percent. However, since gold is classified by the IRS as a collectible, any profit on its sale is considered a capital gain and only faces a 28 percent tax.

What are the rules of rolling over gold into a retirement account?

Investing in a gold IRA rollover is much the same as any other type of individual retirement account. Only here, the account holds physical gold bullion bars or coins rather than paper assets. To create a gold IRA, your current IRA or 401k must go through a transfer or “gold IRA rollover” procedure that is approved by the IRS and is tax-free. The gold is stored in a safe repository until called upon by the investor, who then can either have the gold actually shipped to them or they can sell it for cash, many times to the company that arranged the rollover.

Using standard retirement funds for a gold IRA rollover is not difficult. Once you have made the decision to diversify, it is more a matter of finding the right company that will help you perform a gold IRA rollover and that will hold your investments as your trustee.

Gold IRA companies will be the custodians of your gold-based retirement funds and will offer you their own asset plans for your purchase. All that is needed to do to perform a gold IRA rollover is to fill out the required paperwork to open your personal individual retirement account with this custodian. Tell them in writing that you desire to have the money from your earlier IRA or 401k used in the gold IRA rollover and transfer the money into the new account.

The account can either be a standard IRA, where the funds invested are excluded from taxation until they are withdrawn, or a Roth IRA, where the gold IRA rollover is done after taxes with the funds exempt from taxation on withdrawal. Either way, remember that the gold IRA rollover must be completed within 60 calendar days of removing funds from the initial IRA or you will incur some hefty fees or fines, payable to the IRS.