How to Buy Gold With Your 401(k) (2024)

For many investors, the allure of precious metals is hard to resist; most notably, gold. It is one of the most sought-after and popular investments in the world because it can offer lucrative returns in any investment portfolio. Gold is generally considered to be a safe investment and a hedge against inflation because the price of the metal goes up when the U.S. dollar goes down.

One thing investors need to consider is that most 401(k) retirement plans do not allow for the direct ownership of physical gold or gold derivatives such as futures or options contracts. However, there are some indirect ways to get your hands on some gold in your 401(k).

Key Takeaways

  • The vast majority of 401(k) plansdo not allow individuals to directly invest in physical gold.
  • However, gold IRAs do exist that specialize in holding precious metals for retirement savings.
  • Investors can nonetheless find specific mutual funds or ETFs that hold gold or gold mining stocks through their 401(k)s.
  • Rolling over a 401(k) to a self-directed IRA may give investors greater access to more varied types of investments in gold.

The Basics of a 401(k)

A 401(k) plan is a self-directed employer-sponsored retirement savings plan. Offered by many employers, millions of Americans rely on these tax-advantaged investment plans to help them live out their retirement years comfortably.

People can divert part of their salary on a pretax basis toward long-term investments, with many employers offering to make partial or even 100% matching contributions to the money invested in the plan by employees. For instance, if an employee invests $100 per paycheck into their 401(k), an employer that matches 100% would contribute another $100 to their plan.

Plans come with contribution limits set by the Internal Revenue Service (IRS). For instance, employees are allowed to put away $20,500 from their salary into a 401(k) for 2022 (increasing to $22,500 in 2023). For 2022, anyone 50 and older can also make catch-up contributions of up to $6,500 into their plan (increasing to $7,500 for 2023).

These plans are typically handled by a fund manager or financial services group. Companies generally offer employees a number of different investment options so they can diversify their investments, usually through a selection of mutual funds. Enrollees can choose from a variety of funds, including small- and large-cap funds, bond funds, index funds—all with different growth potential.

Because these plans are so important, enrollees can take advantage of major market opportunities. That's why investors may be interested in shifting a portion of their 401(k) investment portfolio assets to profit from precious metals prices and the gold industry.

401(k)s and Gold Investing

One of the best ways to ride the gold wave is to invest directly in the physical commodity. But there's a catch when it comes to 401(k)s: Very few plans actually allow investors the choice of investing directly in gold bullion. In fact, the vast majority of 401(k) plansdo not allow individuals to make any direct investments into the precious metal. This means you can't go out and purchase gold bullion or gold coins as part of your retirement plan portfolio. But if you're disappointed, don't be, because all is not lost.

For investors who are eager to put their money into gold, there are still options. If your 401(k) does not offer ready access to investments in gold, you may still have some flexibility to invest in gold through mutual funds or exchange traded funds (ETFs).

Gold Mutual Funds

If you can't put your money into tangible gold, you can invest in the precious metal by buying what the industry calls paper gold, or through mutual funds. By looking through the fund descriptions provided with your 401(k) plans, investors can find one or more potential mutual funds that offer significant exposure to gold by virtue of holding stocks of companies engaged in the gold mining industry.

When investing in a specific mutual fund, be wary of its expense ratio. High expense ratios can significantly reduce the profitability of a fund.

For example, Fidelity Investments offers the Fidelity Select Gold Fund (FSAGX). This is an actively managed, low-cost, value-oriented fund. The fund is primarily invested in gold exploration, mining, and production companies such as Barrick Gold, Newmont Corporation, Franco-Nevada, and Agnico Eagle Mines.

Gold ETFs

A 401(k) plan with a brokerage option gives individual investors the freedom to invest in a much wider range of assets through a regular brokerage account, thus providing access to all types of gold investments. For employees enrolled in such a plan, one of the simplest, lowest-cost means of getting exposure to gold is by investing in exchange traded funds (ETFs).

ETFs offer investors the ability to invest in shares of a fund that holds actual gold bullion such as the iShares Gold Trust ETF (IAU) from BlackRock. Another option is the Sprott Gold Miners ETF (SGDM).

Employees enrolled in a 401(k) with the brokerage option also have the choice of investing in individual stocks of gold industry firms.

Self-Directed IRA Rollover

An employee whose 401(k) plan does not offer the kind of free access to gold investing that meets their investment goals can choose to opt-out of their 401(k) into a self-directed individual retirement account (IRA). This option gives plan holders access to virtually any type of investment in gold, including stocks, mutual funds, ETFs, commodity futures, and options.

A Gold IRA, also known as a Precious Metals IRA, is a special type of individual retirement account that specifically allows investors to add goldbullionor coins or other approvedprecious metalsas qualified investments.

When someone with a 401(k) plan leaves their job—as in the case of a retired employee—there is the option to simply roll over the 401(k) money into an IRA. If the 401(k) plan is with a current employer, the employee can ask the employer for the option to take what is termed an in-service withdrawal, where the employee can obtain their 401(k) funds prior to retirement or another triggering event.

There is no tax penalty as long as the employee re-invests the funds in either an IRA or alternate 401(k) plan within 60 days. But traditional IRAs do not usually allow investments in physical gold. The only choice is to put your money directly in gold stocks or funds. But if you're looking to hold physical gold in your portfolio, self-directed IRAs allow for this type of investment.

What Are the 401(k) Contribution Limits for 2022 and 2023?

The contribution limit for a 401(k) account for 2022 is $20,500. This will increase to $22,500 in 2023. If you are 50 or older, you can contribute an additional $6,500 for 2022, and $7,500 for 2023.

Can I Move My 401(k) into Gold?

To move your 401(k) into gold, you would need to leave the company you are working for and then roll over your 401(k) into a self-directed IRA. Once your 401(k) investment amount is in your new self-directed IRA, you can then buy gold.

Do I Have to Pay Tax on Gold?

If you invest in gold and earn a profit, then yes, you will have to pay tax on your profits. Gold is classified as a collectible, such as art or antiques, and is subject to a 28% tax.

The Bottom Line

Though 401(k) plans do not allow for the outright investment of gold, there are plenty of other ways to incorporate exposure to gold in your portfolio. One method includes investing in mutual funds that contain gold companies. You can also roll over your 401(k) into a self-directed IRA under the allowed conditions where you can then invest directly in gold bullion and coins.

How to Buy Gold With Your 401(k) (2024)
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