If you’re looking to make some moves with your retirement funds, a gold IRA can be an excellent way to preserve wealth against inflation and reallocate a chunk away from a volatile stock market during economic distress.

Many companies offer a 401(k), sometimes with substantial employer contribution matches. It’s possible to direct some of that money towards buying gold that can be kept in a self-directed IRA. But it’s not for everyone. Here are five questions to ask yourself to quickly decide if this is a good strategy for your investment portfolio.

What is a gold IRA rollover?

The purpose of a gold IRA rollover is to move eligible funds from your 401(k) into a self-directed IRA that holds gold. It lets you keep your retirement investment in precious metals instead of mutual funds or stocks. This is helpful if you’d like to diversify your retirement with an asset that’s famously used as a store of value.

A rollover differs from buying gold with after-tax money. As both a 401(k) and an IRA are retirement accounts, a rollover allows you to keep assets within a tax-advantaged retirement account. You can’t store those funds or metals at your home without paying taxes (and potentially a 10% early withdrawal fee).

Question 1. Can you roll over your 401(k)?

Don’t just assume that because you’ve got a hefty 401(k) that you can seamlessly deploy those funds toward gold investments. There’s some nuance as to whether your account qualifies for a rollover.

If you’ve got a 401(k) with a former employer, you can typically roll that entire balance into a gold IRA. But if you still work for the employer who administers your plan, you may not be able to move the money yet. That’s because some plans stipulate that a rollover can only happen after you leave your job or reach a certain age. All to say, check your plan’s documentation or ask your administrator to learn your specific options.

Question 2. Will you owe taxes or penalties?

A benefit of rolling over money from your 401(k) to an IRA is that you won’t have to pay taxes right away. Again, as long as it stays within the ecosystem of tax-advantaged retirement accounts, you’ll experience no financial disruption.

The simplest process is a “direct rollover,” meaning funds are sent directly from your 401(k) to your gold IRA custodian. An “indirect rollover” is when the funds are paid to you and then you redeposit that money into a gold IRA. This second option is more complicated, as the plan withholds 20% of the taxable distribution for federal taxes. You’ll have to redeposit the full amount, meaning you’ll pay out of pocket for that 20% in taxes upfront—but should be able to claim it back at tax time as long as you redeposit within 60 days.

It’s worth noting that Roth balances follow different tax rules. Be sure the gold IRA type matches your 401(k) type.

Question 3. What will a gold IRA cost you?

Opening a gold IRA isn’t free. There are ancillary costs that you weren’t dinged with for opening your 401(k). This can make you think twice about opening a gold IRA with your retirement funds.

In addition to a potential one-time setup fee, you’ll likely pay for annual or custodian fees, as well as recurring costs for storing and insuring your metals. Some gold IRA companies will waive or lower certain fees. But your decisions should take more than that upfront cost. You want a reputable gold IRA company like Goldco, which works with multiple custodians and offers a generous buyback program.

Also be prepared to “lose” a portion of your retirement funds during the actual purchasing of gold. You’ll pay dealer markups and premiums over gold’s spot price—and be prepared to sell gold at a price below spot in the future.

In short, ask your gold IRA company for a complete fee schedule that includes details like storage, transactions, and account-closing charges. And know how the company sets its buyback price. All this will give you a better idea of a gold IRA’s true cost.

Question 4. What are you giving up?

Here’s the thing about investing in physical gold: It doesn’t earn interest and it doesn’t pay dividends. The only way it can make you money is if its price rises before you sell. Otherwise, its value is as a hedge against inflation and a historically smart way to diversify your investment during economic uncertainty. In other words, putting your investment in gold can preserve your money’s purchasing power over long periods when traditional investments are facing market pressure.

To be clear, moving your 401(k) into a gold IRA means you won’t earn interest from products like IRA CDs; you won’t earn dividends as you might with, say, stocks or mutual funds. You’re effectively betting that gold’s value will either rise faster than interest rates—or that the U.S. dollar will lose value beyond what a high-APY account can make up for.

Additionally, you could lose benefits that come with your workplace 401(k), such as employer contribution matches.

Question 5. Does gold fit your retirement strategy?

Gold can absolutely justify a slice of the pie that is your retirement investment plan. That said, it probably shouldn’t be your sole strategy. It’s suggested as a way to diversify, with many experts recommending that you keep between 5% and 15% of your total investment in precious metals.

Decide how much of your savings you want in gold. Consider factors like how soon you think you’ll retire, whether you’ll need to withdraw from retirement savings, and the amount you already have dedicated to other investments—such as stocks and bonds.

The takeaway 

There are several things to consider before you decide to rollover your current 401(k) into a gold IRA. Are you able to pay out of pocket for any related penalties and costs related to buying gold? Are you at peace with not making any dividends or interest on your investment? Is your 401(k) even eligible for a rollover?

If all arrows point toward a gold IRA suiting your retirement strategy, take a look at our step-by-step guide for rolling a 401(k) over to a gold IRA.

Frequently asked questions

Can you roll a 401(k) into a gold IRA without paying taxes?

Yes, you can typically roll a 401(k) into a gold IRA without paying taxes via a direct rollover. An indirect rollover will require you to effectively pay taxes upfront, but you’ll get it back at tax time as long as you redeposit the full eligible amount within 60 days.

What is a gold IRA rollover?

A gold IRA rollover simply moves qualifying funds from another retirement account, such as a 401(k), to a self-directed IRA that’s eligible to hold precious metals.

What types of gold can a gold IRA hold?

Only IRS-approved gold is eligible to be held in a gold IRA. This typically means a fineness of at least 99.5%. However, the Gold American Eagle coin is a famous exception at 91.67% purity. Gold IRA websites generally label which gold products can be held in an IRA.

Can you store gold from a gold IRA at home?

No, you can’t store gold from a gold IRA at home. It must stay in the physical possession of your custodian. If you take delivery of it before age 59 ½, it’ll be treated as a taxable distribution.

Can you lose money in a gold IRA?

Yes, you can lose money in a gold IRA through gold dealer markups, storage fees, account fees, and more. But your primary concern should be the opportunity cost of investing in an asset that doesn’t earn dividends or interest—and generally has a much lower potential upside than the stock market.