Buying physical precious metals, such as gold coins, gold bullion, gold bars, and other gold assets, isn’t the only way to invest in precious metals. You can consider gold IRAs as alternative gold investments to diversify your retirement portfolio.
A gold IRA is a traditional IRA that invests in precious metals instead of standard stocks, bonds, and mutual funds. The only way to fund a precious metals IRA initially is by moving funds from an existing retirement account.
The two main ways to fund a gold IRA are through a gold IRA transfer or a rollover. While you may hear these terms used interchangeably, they refer to different processes with varying rules and tax implications.
Understanding the difference between an IRA transfer and a rollover can help you determine the best funding process for your needs. Read on to learn more about these two methods of funding your gold IRA account.
What Is a Gold IRA?
A gold IRA is a self-directed retirement account that invests in precious metals, like gold and silver, instead of more traditional investment options. These accounts allow you to reap the benefits of investing in gold without needing to buy gold directly.
You won’t have to worry about storing gold coins in an IRS-approved depository or selling your gold at the right time. Working with a gold IRA provider is a simpler form of gold investing.
What is a Gold IRA Transfer?
A gold IRA transfer is a method of moving retirement funds from one IRA account to another. This method automatically transfers your retirement savings, requiring minimal involvement.
You can initiate an IRA gold transfer with your existing IRA provider by completing a transfer request form. This custodian will contact the provider of your new gold IRA and move the funds directly from your existing account.
Because you are not actually withdrawing any funds from your existing IRA, you do not need to report this transfer to the IRS. As the account holder, you will not see the money in your bank account — it only moves between third parties.
Your gold IRA transfer will take anywhere from a few days to a few weeks. Once your new gold IRA company receives the funds, it will invest them in the precious metals you choose.
What is a Gold IRA Rollover?
A gold IRA rollover is another method of moving funds between retirement accounts. However, rollovers involve a manual transfer rather than an automatic one.
The two main types of IRA rollovers are direct and indirect.
Through an indirect rollover, you would withdraw the funds from your existing IRA account, then redeposit them in the new IRA account. You would have no more than 60 days to complete the redeposit.
Through a direct rollover, your IRA company would transfer your funds directly from your existing IRA to your new IRA. A direct rollover is similar to an IRA transfer and does not require you to withdraw any funds from your account.
For the purpose of this article, we will discuss the differences between an indirect rollover and an IRA transfer.
Difference Between Gold IRA Transfer and Gold IRA Rollover
Transfers and rollovers are similar processes but have different implications for your retirement account. Here are the main differences between these two funding methods for precious metals IRAs.
While the time involved in rollovers and transfers can vary, rollovers are often faster than transfers.
When you initiate a rollover, you will have 60 days to deposit your withdrawn funds into your new IRA. If you want to complete the transfer quickly, you can deposit the funds in your new IRA the same day you receive them from your old one.
In an IRA transfer, you must rely on the gold IRA companies to complete the transfer process. This transfer can take anywhere from a few days to a few weeks, and you can’t begin growing your investment until it is complete.
There are no limits to the number of IRA transfers you can complete in one year. Meanwhile, you can only complete one rollover per 365-day calendar year.
If you’ve already completed your one rollover, you can use the transfer method to move funds to a new IRA.
Gold IRA rollovers evoke withdrawal penalties, while transfers do not.
When you roll over funds to a new IRA, you essentially withdraw them from your current account, hold them in your bank account, and then deposit them into your new IRA. If you are under the minimum withdrawal age of 59.5, you’ll need to pay a 10% early withdrawal penalty.
Meanwhile, because IRA transfers do not involve withdrawing funds from your personal bank account, they do not evoke any penalties.
There are typically no fees involved in moving funds to a new IRA. However, most gold IRA custodians charge account fees. Whether you initiate a rollover or a transfer, you’ll likely need to pay account holder fees to open your new precious metal IRA.
The funds you transfer between IRAs are not considered taxable income. In a rollover, you would need to pay taxes on your withdrawal if you exceeded the 60-day rule.
The IRS gives you 60 days to roll over funds between retirement accounts. If you hold your retirement assets for more than 60 days before depositing them in your new account, the IRS will deem them taxable as ordinary income.
In some cases, you may receive a waiver to prevent these tax penalties. For instance, if the bank makes a mistake while depositing your funds, you can request a waiver from the IRS.
Both direct and indirect rollovers must be reported to the IRS. Even if you complete a direct rollover in which no funds touch your personal account, you’ll need to include this transfer in your tax return.
Meanwhile, you do not need to report an IRA transfer to the IRS. The assets in a transfer are not taxable.
One of the most significant differences between transfers and rollovers is the margin for human error.
In a transfer, you have little risk of completing the process incorrectly and facing penalties. In a rollover, you are responsible for ensuring that your funds reach your new self-directed IRA within 60 days of your withdrawal.
Pros and Cons of a Gold IRA Transfer
- Hands-off approach
- No 60-day transfer rule
- No annual limits
- No tax implications
- No early withdrawal penalties
- Safer funding method
- Less control over the transfer process
Pros and Cons of a Gold IRA Rollover
- More control over the IRA funding process
- 60-day period to make an informed decision about your new IRA
- Potentially faster transfer process
- Reporting requirements
- Potential tax implications
- Annual limit of one rollover per year
- More room for error
Types of Retirement Plans Eligible for a Gold IRA Rollover
While many people choose to transfer an existing traditional IRA or Roth IRA to a gold IRA, you can roll over a few different types of retirement investments. Here are the retirement plans eligible for rollovers to gold IRAs:
- IRAs: You can roll over any traditional IRA, Roth IRA, simple IRA, SEP IRA, or self-directed IRA to a gold IRA.
- 401(k)s: You can roll over an inactive 401(k) to a gold IRA. If you are at least 59.5 years old, you can complete a partial gold IRA rollover of a current 401(k).
- 457(b): This retirement plan is available to state and local government employees. You can roll over a 457(b) after terminating employment.
- 403(b): 403(b) accounts are available to employees of tax-exempt organizations. You can roll over a 403(b) after ending employment at one of these organizations.
- TSPs: Thrift Savings Plans are retirement accounts available to government employees. You can roll over a TSP to a gold IRA after ending your employment.
Gold IRA Rollover or Gold IRA Transfer: Which is Better?
While a gold rollover and gold IRA transfer both enable you to fund gold IRA accounts, transfers are the preferred method for most investors.
Transfers allow you to fund your new IRA from an existing Roth IRA or traditional IRA without facing penalties. You can begin growing your retirement plan quickly without the risk of making an unforeseen mistake.
If you’re interested in learning more about physical gold investment options, gold stocks, or the top gold IRA companies, our site can help. Browse our blog for reviews of gold IRA rollover companies and everything you need to know about these alternative investments.