Platinum 401(k) Rollover Guide: How to Start 401(k) to Platinum
A 401(k) plan helps company employees invest some of their earnings for their life after retirement. Companies also match up 401(k) plans in some cases up to a certain amount or percentage limit, which may vary from company to company. Such plans are a convenient option that employees can use to save money regularly.
While 401(k) plans seem advantageous, one shortcoming that financial advisors often highlight is that the investment choices available for the investors are limited. With massive changes in the stock market, currency, inflations, and geopolitical risks, investors aim to diversify their investment portfolios to reduce the risk and increase their potential returns. They do so by investing in precious, physical metals like physical platinum by buying platinum coins, platinum bullion platinum bars, etc., which act as a hedge against inflation and other risks.
What is a 401(k) plan?
According to the Internal Revenue Code (subsection 401(k), 401k investments are tax-deferred accounts where employees have the right to transfer a specific part of their earnings with the aim of long-term saving.
The earnings are transferred to the account before the employee pays any taxes, which means that the taxes on that specific portion of earnings is deferred until the employee withdraws the cumulative money at retirement. 401(k) plans also have annual limits set by the IRS.
Benefits of Individual 401k plan
Investing money through a 401(k) has limited options, but some plans offer a wider range of options to choose from, including money market funds, mutual funds, bond funds, stable value accounts, and company stock. This helps investors conveniently diversify their investment portfolios. Account-holders also have the right to transfer money from one fund to another with changes in the market conditions and circumstances over time.
Many employees believe the company matching concept to be an extremely fruitful benefit. This means that the company will match the contribution made by the employee, and the combined contribution will go to the retirement savings fund. This would help the investment amount grow fairly quickly and would also help investors in reaching their objectives regarding retirement quickly. Investors must note that the set limits vary from company to company, and the maximum time when the funds are said to be vested also varies.
Another benefit of the 401(k) plan is that investors are allowed withdrawals in their retirement portfolio in the case of a special, unfortunate event that includes education, purchase of the real estate, economic hardship, or health expenses. The investor is supposed to return the amount they withdraw within five years, and the interest that an investor has to pay on loan would be deposited into their account. The restrictions differ if an employee leaves the organization with an outstanding 401(k) loan, which, if not followed, would make the employee liable for withdrawal penalty and taxes on their funds.
When do you want to roll over a Platinum 401(k) to an IRA?
When a person changes their job, they must make a decision regarding their old 401(k) account. The available options include rolling over to another 401(k) account or opting out of 401(k) accounts and getting an IRA. The second option is chosen by employees when their new employer offers a limited amount of mutual funds or investment options and charges a high fee.
The primary reasons people move over to an IRA instead of another 401(k) include:
Greater Investment Options
A 401(K) plan usually offers around 6 to 24 options of valuable investments. On the other hand, IRAs allow investors to choose from a wide range of funds and stocks along with alternate investment options, including bitcoin, ETFs, and more.
Some companies give employees the benefit of covering their 401(k) fees. But the company might not do so once the employee leaves the company or during unforeseen circumstances when the company decides to stop giving this favor to their employees. For this reason, employees must ensure that the employer plan offered by their employer for retirement is well within their budget and they are capable enough to bear the potential costs of the 401(k) account.
Rolling over from a 401(k) to an IRA would help employees eliminate the administrative and labor costs and provide access to funds with lower costs, such as index funds.
Access to Roth Accounts
Some 401(k) plans do not provide the employees with an option to roll over to Roth 401(k) plans directly. For this reason, rolling over to a Roth IRA seems a good option. Benefits of 401(k) to Roth IRA rollover include no income restrictions in Roth IRA, allowing employees to withdraw their money at retirement without paying taxes. Another common benefit is the cancellation of RMDs – Required Minimum Distributions which gives employees more control over their savings at the time of their retirement. Roth IRAs also provide additional benefits like allowing the transfer of Roth IRA to heirs. While investors might feel that converting from a 401(k) plan to a Roth IRA would require them to pay taxes, they must understand that these taxes would be lesser than the ones they will have to pay at the time of withdrawal from a normal 401(k) plan.
Process of 401(k) to an IRA Platinum rollover
Select the destination of your 401(k) rollover
Employees must choose whether they want to opt for a Roth IRA or a Traditional IRA. A 401(k) to a traditional IRA rollover is chosen when employees aim to continue with the same tax treatment and RMD to avoid the hassle. A 401(k) to a Roth IRA rollover is chosen when employees have a high income and want to use a backdoor to get Roth Tax treatment. The employees rolling over to Roth accounts must remember that if they are close to retirement, such a rollover might not be very beneficial.
Select an IRA provider for the rollover process
Employees must select a suitable brokerage firm to provide them with investment offerings. The services and fees of the brokerage firms must be considered before selecting a Robo-advisor or brokerage firm. Investors who plan on investing in options other than bonds, stocks, mutual funds, or Exchange Traded Funds must also find a self-directed custodian to assist them in opening a self-directed IRA.
Contact and inform your current employer and the new private employers.
While an ideal situation calls for the 401(k) administrator to transfer money to the new IRA directly, not all custodians prefer this and put money in a personal bank account first, which results in the payment of extra tax money and penalties if restrictions not met within 60 days.
Employees must ensure that they continue investing in their individual retirement accounts on a regular basis. Even though the contribution limits in IRAs are smaller compared to 401(k) plans, the balances do not affect the limits. Employees can maximize their contributions by contributing together to the retirement plan and IRA.
Investing in platinum is a good alternative for investors to diversify their retirement plans by investing in a range of retirement assets, including coins, bars, bullions, and stocks of platinum companies. Conversion from a 401(k) plan to a direct platinum rollover is a good idea for investors who do not follow the economy or the stock market. Investors must also remember that financial planners do not suggest investing all savings in one form of investment and prefer diversification. This is why investors must include various strategies in their retirement funds to build risk tolerance, as diversification in different assets would act as hedges against risk.