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Published: Jul 26, 2023 15 min read

Money is not a client of any investment adviser featured on this page. The information provided on this page is for educational purposes only and is not intended as investment advice. Money does not offer advisory services.

During times of market volatility and elevated inflation, many investors turn to precious metals like gold as investment hedges to help mitigate the risk of stock losses. If you have a 401(k) account, you may consider using some of your retirement funds to purchase gold — but beware the risks.

This article explains how to use your 401(k) to buy gold, as well as the potential benefits and risks of doing so, to help you decide if it’s a good decision for your finances.

Can you buy gold with a 401(k)?

Most 401(k) retirement accounts are employer-sponsored, meaning your investment decisions may be limited, depending on the account your employer makes available to you. Typically, 401(k) plans don’t let you buy physical precious metals, but you might be able to invest in gold by buying gold-leveraged mutual funds, gold-leveraged exchange-traded funds (ETFs) or, less commonly, stocks of companies specializing in gold mining.

Financial instruments that hold gold-backed assets can be a good option if you’re looking for exposure to gold without investing outside of your 401(k). You can also use a 401(k) rollover to purchase physical gold.

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Different ways to buy gold with your 401(k)

If your current employer-sponsored 401(k) doesn’t offer ways to buy physical gold, there are still other techniques for adding gold to your retirement portfolio. Those options include:

Gold IRA

Precious metals individual retirement accounts (IRAs) are retirement accounts that allow you to purchase physical gold, silver, platinum and palladium, so long as the metals are in IRS-approved coin or bar products. Depending on your retirement goals, you can set up these accounts as pre-tax or after-tax (also referred to as Roth IRAs).

While a precious metals IRA will allow you to buy physical assets like gold bullion or silver coins, you must pay for both an account custodian as well as storage and insurance fees in order to hold your IRA gold without penalty.

A gold IRA is a self-directed IRA, which is a type of retirement account that can hold alternative investments that other IRA accounts cannot. In order to open a self-directed IRA to hold gold or other precious metals, you’ll need to find a gold IRA company — essentially, a precious metals brokerage that can facilitate opening the account and processing the necessary paperwork.

Gold IRAs charge administrative or management fees, much like 401(k)s. That means, you should choose investments with expense ratios below 1% when possible to help reduce the burden of fees. Gold IRA account expenses include setup costs, costs for management and costs for storage and insurance. So if you’re considering a gold IRA, make sure you have a strong understanding of all the fees.

Once you set up your account, you can roll over the funds from your 401(k) in one of two ways: a direct or an indirect rollover.

Direct rollover

A direct gold IRA rollover is a process by which you roll over an old 401(k) or qualified account into a new gold IRA via the original fund custodian. This is the recommended method for conducting a rollover since your original fund manager will transfer your funds via wire or check directly to the new account custodian, and you won’t need to be involved, lowering the chances of you making a mistake that could lead to a penalty from the IRS.

Indirect rollover

The other option for transferring funds from an existing retirement account to a gold IRA is an indirect rollover. In this case, you’ll receive a check with your retirement funds and are responsible for depositing the funds into your new gold IRA.

In most cases, the custodian of your original account will withhold 20% of your funds for taxes, which means you need enough money outside of your 401(k) to roll over your full distribution. If you don’t complete the indirect rollover within 60 days, the IRS will take that withheld 20% to pay taxes on your early distribution. If you’re younger than 59 ½ years old, you’ll also be subject to a 10% early withdrawal penalty if the rollover is not completed within 60 days.

However, if you complete the transfer within 60 days, the IRS will add the withheld funds to your new account. If you plan to transfer funds from a pre-tax account like a 401(k) to an after-tax account like a Roth IRA, you must pay taxes on the distribution before you can add your funds.

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Mutual funds

Mutual funds are one of the most common investments offered within 401(k) plans. While you cannot purchase physical gold through a mutual fund, you can still invest in gold mutual funds.

For first-time gold investors, this can be a great way to get started. As opposed to buying individual gold stocks, a gold mutual fund offers better diversification since it gives you exposure to a variety of companies tied to gold and gold mining. If you invest in mutual funds within your 401(k), you can recognize the tax benefits of having those assets grow tax-free until withdrawal.

Keep in mind that mutual funds are often actively managed, which means they charge expense ratios that include management fees. When possible, seek out mutual funds that have track records of strong performances coupled with lower expense ratios.

Gold exchange-traded funds

Gold ETFs are another possible starting point for investors who are interested in precious metals. But ETFs are rarely offered in 401(k)s because their primary advantages of tax efficiency and intraday trading don’t particularly align with the goals of a retirement account.

ETFs are similar to mutual funds in that they allow you to invest in pooled assets from multiple companies versus a single company. However, unlike mutual funds, most ETFs passively track indexes rather than being actively managed. This makes them a lower-cost alternative to mutual funds.

However, numerous ETFs are actively managed and are leveraged toward particular industries, sectors or commodities, like gold. By purchasing a leveraged gold ETF, you can invest in a fund that holds gold coins or bullion without going through the hassle of owning gold, or a fund that holds stocks of gold-mining companies. Unlike passive ETFs that track indexes, though, actively managed ETFs typically charge expense ratios, which include management fees.

Key advantages of including gold in your retirement portfolio

Gold is well known as a hedge against inflation. For years, investors have owned gold as a way to store value in the form of bullion, coins or jewelry. When the dollar drops in value, the value of gold typically increases, which is one reason investors might consider adding gold to a retirement portfolio.

Similarly, as a safe haven asset, gold prices tend to remain stable or increase in times of market volatility. While stocks and bonds, or funds that invest in them, are strong long-term investments, diversifying your portfolio with gold does have benefits, especially during times of economic uncertainty.

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The potential risks of buying gold with your 401(k)

Like any investment, purchasing gold comes with risks. Like most stores of value, gold doesn’t produce earnings or dividends that will compound in long-term interest. While gold can help diversify your investment portfolio and protect against market volatility and inflation, it may not be the best investment if you are trying to increase your wealth or generate investment income.

If you have a gold IRA, you can only put IRS-approved gold in it (i.e., certain gold coins and bars), not jewelry or collectibles. You will also need to pay fees for a gold IRA custodian to manage the account as well as for a secure, IRS-approved depository to hold and insure the physical gold for you.

Transferring retirement savings out of your employer-sponsored 401(k) into gold IRA investments can be risky because 401(k) plans offer more financial protection than IRAs. Your 401(k) may be federally protected if you go bankrupt or get sued. The protections granted to your IRA will depend on your state but could be less comprehensive.

Gold IRAs also require you to be 59 ½ years of age before you can begin withdrawing from your account without penalty. However, if you keep your money in an employer-sponsored 401(k) and you quit or are terminated from your job in the same calendar year you turn 55, you can begin accessing your funds without incurring the 10% tax penalty the IRS assesses for early withdrawals.

Do self-directed IRA rollovers have tax penalties?

If you transfer funds from an existing 401(k) to a traditional gold IRA — and meet the 60-day time limit if you opt for an indirect rollover — you will not receive any tax penalties. As with other traditional IRAs funded with pre-tax contributions, the IRS will tax you when you take distributions at retirement age.

Transferring money from a 401(k) to a Roth gold IRA has different tax implications, though. The IRS will tax your contributions before you deposit them into your Roth IRA. If you fund a Roth gold IRA with after-tax contributions, you won’t have to pay taxes when you take withdrawals after age 59 ½.

Can you use your retirement funds to hold physical gold investments?

Since 401(k) plans don’t allow direct investments in physical gold, you can explore other types of gold-backed assets like gold mutual funds or leveraged gold ETFs. If you want to purchase physical gold bars, coins or bullion to diversify your retirement account, you need to open a self-directed gold IRA. For more on this, take a look at our guide on how to buy gold in an IRA.

Tips for choosing a gold investment option

Investing in gold could make sense for some, but may not be right for others. In order to better understand if gold investments should be part of your retirement plan, here are some tips to consider.

Weigh the pros and cons

When considering whether or not gold is the right investment fit for you, think about how its advantages and drawbacks apply to your personal situation.

If you’re looking for an investment that’s relatively safe amidst volatility and inflation, investing in gold may be a good choice, especially if it’s just one part of your overall investment strategy.

However, if you’re looking for higher returns, or you want to avoid the risks or tax implications of rolling your retirement funds into an IRA, gold may not be your best choice.

If you decide a gold IRA is a good fit for your retirement goals, you’ll also need to research the best gold IRA companies. Compare each company’s investment minimums, fees and terms and conditions.

Don't sacrifice asset diversification

Gold is relatively easy to purchase and available in many forms. It is also a very liquid asset, so if you change your mind, you can sell it fairly easily. However, tread carefully if you’re considering switching from a 401(k) to a gold IRA. While 401(k)s and other employer-sponsored retirement accounts let you easily build a diverse retirement portfolio, any money you have in a gold IRA is held within a single asset class, exposing you to considerable concentration risk.

Ensure that your overall portfolio allocation won’t be too heavily invested in gold. As a rule of thumb, financial advisors recommend keeping a maximum of 10% of your wealth in precious metals.

Consider your retirement goals and calculate how much money you’ll need

Think about the kind of lifestyle you want to live in retirement and determine how much you’ll need to spend on housing, food, Medicare supplements and long-term care insurance, as well as travel and entertainment.

When you have a good idea of the retirement you want, you’ll need to come up with a number for your annual spending, then compare that to how your 401(k), Social Security and other income streams will be able to handle your everyday bills and long-term expenses.

Be mindful that gold doesn’t generate dividends or interest for compounding. Decide how much of your portfolio should be allocated to long-term growth assets and what portion of your portfolio you will diversify with gold or other precious metals investments.

Seek unbiased professional advice

If you’re having difficulty determining if gold should fit into your nest egg, it’s never a bad idea to get advice from a professional. Consulting a financial planner or advisor can help you determine strategies for growing and preserving wealth while maintaining peace of mind. Keep in mind that these professionals don’t work for free. To ensure you receive unbiased advice, seek out a fee-only financial advisor who doesn’t earn commissions from the securities, gold or other assets they sell you.

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Summary of how to buy gold with your 401(k)

  • While it may be difficult to purchase gold with your 401(k), there are ways to do it.
  • Depending on your situation, you might consider adding gold exposure to diversify your portfolio with a safe-haven asset that could protect you during times of elevated inflation and market volatility.
  • You won't earn interest on your gold investments, and if you decide to transfer money out of your 401(k) and into a gold IRA, there are a number of financial risks you may face.
  • Consider your investment choices and what’s best for your finances before committing to buying gold. If you are unsure of what to do, speak with a financial advisor who is a fiduciary.
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