Gold IRA vs. 401(k)

Gold IRAs and 401(k)s can both offer undeniable advantages. However, significant differences between each account type may make one a better fit for your portfolio than the other. 

Keep reading to learn how gold IRAs compare to 401(k)s and how to decide which is the wisest choice for you.

What’s the difference between a gold IRA vs. 401(k)?

Gold IRAs and 401(k)s provide a clear path to retirement savings, but that’s about where the similarities end. Gold IRAs and 401(k)s hold different types of assets, get unique tax treatment, and come with different contribution limits. 

Here’s a closer look at how gold IRAs and 401(k)s compare:

Factor	Gold IRA	401(k)
Composition	Precious metals	Traditional investments
Open with…	A bank or brokerage	Your employer
Custodial reqs?	✔️	✖️
Contribution limit <50 years old*	$7,000	$23,000
Contribution limit >50 years old*	$8,000	$30,500
Contributions made…	Pre- or post-tax	Pre-tax

Perhaps the most obvious distinction between gold IRAs and 401(k)s is the investments each one holds. 

You can purchase IRA-eligible gold or other precious metals in coins or bars through a gold IRA. But not all metals qualify. They must meet IRS purity standards and fall into one of the categories below:

Metal	Purity req.
Gold	99.5%
Silver	99.9%
Platinum	99.95%
Palladium	99.95%

By contrast, a 401(k) lets you invest in a variety of mutual funds, typically including the following:

• Target-date funds (TDFs): TDFs adjust your portfolio’s risk level and allocation over time based on your anticipated retirement date.
• Asset allocation funds: These fill your portfolio with a combination of investments based on your risk tolerance.

You can’t usually use a 401(k) to buy and sell individual stocks. Instead, your employer and plan administrator preselect several fund options you can choose from.

Along those lines, because 401(k)s are often employer-sponsored, you can open an account through your company’s online benefits portal. Your contributions are deducted pre-tax if you elect a traditional 401(k), which will lower your current taxable income, or post-tax if you elect to contribute to a Roth 401(k) or a combination of the two.

You’ll go through a bank or brokerage to start a gold IRA. Here’s an overview of how gold IRAs work and what to expect, from opening your account to completing your first transaction:

1. Decide whether you want to set up your gold IRA as a traditional or Roth IRA. If you designate your gold IRA as a traditional IRA, you’ll get a tax break on your contributions. If you opt for a gold Roth IRA, you’ll get a tax break on your distributions.
2. Decide where to open your IRA. Your chosen company will serve as your IRA custodian, overseeing all its facets. For a seamless experience, we recommend working with one of the top gold IRA companies.
3. Fund and order your metals. You must wait for your funds to clear before purchasing precious metals through your IRA. Once your account is ready, your custodian will help you explore your options and complete the transaction on your behalf.
4. Choose where to store your metals. The IRS prohibits you from storing gold IRA commodities at home. Work with your custodian to identify an IRS-approved depository for your precious metals.

Each depository—and, for that matter, each brokerage—will charge its own fees. Common gold IRA fees include account setup costs, shipping and storage expenses, and administration fees. You may also pay fees for a 401(k), but these tend to be less expensive.

The gold IRA fees might sway you toward a 401(k) depending on your financial goals and resources. But if a gold IRA is the next step in your pursuit of a comfortable retirement, you might deem the fees immaterial in the long run.

In either case, it’s best to consider each account type holistically and weigh the advantages and disadvantages of gold IRAs and 401(k)s.

Pros and cons of a gold IRA

Gold IRAs offer several benefits, but they also have a few drawbacks.

Pros

• More control over your tax treatment.

  Does your financial strategy call for a delayed tax liability? Perhaps you anticipate earning more in subsequent years? Gold IRAs put you in the driver’s seat, allowing you to choose whether your investments will reduce your current tax bill or grow tax-free.

• You could avoid required minimum distributions (RMDs).

  If you set up your gold IRA as a Roth IRA, your investments can sit as long as you’d like. You don’t need to take distributions at all, giving your investments ample time to grow. With a traditional pre-tax 401(k), RMDs often start in your early 70s. With a Roth IRA, beginning in 2024, no RMDs are required during the original owner’s lifetime.

• Protect your investments against inflation.

  Precious metals, particularly gold, are regarded as reliable investments. You typically won’t see drastic fluctuations in value with precious metals, which can add stability to your portfolio and help mitigate risk.

Cons

• Your investments aren’t protected from creditors.

  The Employee Retirement Income Security Act of 1974 (ERISA) extends immunity of sorts to certain retirement plans and prevents creditors from garnishing qualifying investments. A 401(k) is covered under ERISA, but gold IRAs often aren’t.

• You can’t borrow against a gold IRA.

  Some 401(k) plans allow investors to take out 401(k) loans, but the only way to withdraw money from your gold IRA is to sell some or all of your metals.

Pros and cons of a 401(k)

A 401(k) has its share of positives and negatives.

Pros

• Contribution limits are higher.

  You can invest over three times more per year in a 401(k) than you can in a gold IRA. Even if you can’t afford to max out your contributions, fewer limitations on how much you can invest translates to fewer limitations on how much your investments can grow.

• Your employer might match contributions.

  Many companies match employee 401(k) contributions dollar for dollar, up to a certain amount—and matched contributions don’t count toward your annual contribution limit.

• You’ll get an upfront tax break.

  Your 401(k) contributions are deducted from your gross pay, reducing your taxable income for the year in which you contribute. This not only keeps more money in your pocket, but it could also open you up to additional income-based tax credits and deductions.

Cons

• You risk paying more in taxes when you take distributions.

  Because your 401(k) contributions aren’t taxed, your distributions will be. If you end your career in a higher tax bracket—or if income tax rates increase in general—you could pay more in taxes when you retire than you saved on your contributions.

• Fewer exceptions to the 10% early withdrawal penalty.

  With gold IRAs, you can avoid the penalty if you pay for qualified educational expenses or buy your first home. A 401(k) doesn’t afford those same exemptions, giving you less leeway in using your funds before retirement.

Read More

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Is a gold IRA or 401(k) right for me?

Whether a gold IRA or 401(k) is better depends on your current resources and investment priorities. 

Sometimes, the choice is obvious. For example, if you want to buy precious metals, you must open a gold IRA. But which route should you take when your parameters are more fluid?

We’ve outlined a few scenarios that lend themselves to one account type or the other:

If you…	Consider a…
Have a lower risk tolerance	Gold IRA
Can’t afford high fees or min. investment reqs.	401(k)
Want tax-free distributions	Gold IRA
Can take advantage of employer matching	401(k)

Precious metals are considered more conservative investments than stocks and bonds. A gold IRA may be the way to go if you want to add a less risky investment to your portfolio.

However, gold IRAs often require hefty initial investments, ranging from $10,000 to $25,000. If you don’t have that much cash available, you may be able to invest in metals-related funds through your 401(k) instead.

While a 401(k) won’t help you save on taxes during retirement, you’ll still get a present-day tax break on your contributions. You can also make the most of your company’s employer match—something you can’t do with a gold IRA.

Our expert’s advice

Erin Kinkade

CFP®

If you don’t have the option to contribute to a 401(k) and understand the rules and regulations surrounding a gold IRA, I would recommend a gold IRA as long as you have other funds in diversified assets. If you have access to a 401(k), I recommend contributing to that, especially if you don’t have a diversified portfolio and need to be able to contribute a larger sum to the 401(k) to prepare for a successful retirement.

Should I have both a gold IRA and 401(k)?

Why have one retirement account when you can have two? Gold IRAs and 401(k)s are different enough that having both may be a wise financial strategy. With a gold IRA and 401(k) tag-teaming your investments, you could:

• Get a tax break now and in retirement.
• Add physical commodities to a portfolio that would otherwise only hold securities.
• Increase your annual contribution potential by tens of thousands of dollars.

You don’t need to open each account simultaneously. Given that gold IRAs require significant initial investments, a 401(k) may be a more realistic first step.

Our expert’s recommendation

Erin Kinkade

CFP®

I would recommend both if you max out your 401(k) contributions in a diversified portfolio, have excess cash remaining to invest, and are educated about the pros & cons and rules & regulations of owning a compliant gold IRA.

Contributing to a 401(k) while you save for a gold IRA can help you stay on track for retirement. It also reduces your tax liability, freeing up funds you can later put toward your IRA. Plus, if you’re eligible for employer matching, you’ll compound your investment efforts without adding to your investment expense. 

Tip

You may not need cash to fund a gold IRA. You can always roll over your 401(k) contributions instead.

What you don’t want to do is put off investing in either account type just because you can’t open both right away. When it comes to saving for retirement, time is your most valuable asset. The sooner you start investing—even if you start small—the better off you’ll be.