In most countries, there are retirement plans offered to employees to save with tax advantage. In India, we have EPF and EPS. The USA has a 401k plan. An interesting feature of the 401K plan is buying gold through it. This article covers 401K and how can one buy gold through it. A 401k plan is a United States employer-sponsored contribution pension savings plan. It is part of the Internal Revenue Code and it is defined in subsection 401k where it gets its name from. It is offered by employers and has a lot of tax advantages for the saver.
An employee that signs up for the plan agrees to have a fraction of their wages paid into an investment account. Their employer in turn may then match all or part of this contribution.
The tax advantage of this plan comes either at the point of contributing the money or at the point of withdrawal. Currently, the annual limit of contribution is $19,500. For people who are 50 years and above, the limit is $26,000.
Employees who participate in the scheme get to choose amongst different investment options where their money will be invested towards retirement. These can be in stocks, mutual funds, etc. They may even be able to invest in precious metals such as gold. You can learn more about it here.
As stated above, this plan is meant for people who are in paid employment. However, as a business owner, you are still able to participate in the scheme. This is through what is referred to as the solo 401k plan.
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What is Solo 401k?
A solo 401k is not in any way different from the regular one in functionality. The only difference of course that it is meant for business owners. It allows a small business owner with their spouse and no other employee to participate in the tax-deferred plan.
It has the same rules as well as requirements as the regular plan with two notable exceptions. The first is that the business owner is not subjected to the complex requirements of the Employee Retirement Income Security Act (ERISA). Secondly, you cannot have any other employees of the business that are considered as full-time employees. That is, working up to 1000 or more hours in a year.
For this type of plan, the business owner is considered as both the employer and the employee. This means that contribution limits to the plan can only be $17,500. People who are 50 plus may contribute up to $23,000. Any additional contribution is considered as an “employer” contribution.
In the final analysis, the total contributions from “employer” and “employee” must not exceed $58,000. You can find more information on this here https://www.nerdwallet.com/article/investing/what-is-a-solo-401k.
Investing in Gold with a Solo 401k Plan
One of the best methods of investing in gold is to buy a physical commodity. However, when it comes to 401k plans it can be tough to invest directly in it as very few plans allow it. Most of these plans do not allow you to buy gold bullion or coins as a part of your retirement portfolio.
Thankfully, there are ways of going around this obstacle with a solo 401k account. Most people who invest in gold prefer to own the commodity outright. It is possible for those with access to custodial accounts which are outside of the regular 401k plan to do so.
However, solo 401k plans do not require one to use a custodian like in an IRA. This means that any financial institution or bank can act as the trustee. Having physical gold in your solo plan will help to diversify your investments and create a personal hedge fund.
What Type of Gold Can You Buy and Hold?
A solo 401k plan that allows you to hold gold also dictates the type or quality of gold that it can hold. That is, not every quality of precious metals can be held in a solo 401k.
Only gold with a fineness that is equal to or exceeds a fineness of 995 parts for every 1000 are acceptable. In other words, it must have a fineness of 0.955%. Fortunately, a lot of the gold bullion coins that are issued by various governments worldwide meet up with this fineness standard.
Furthermore, the precious metal must come from a COMEX or NYMEX-approved refiner. COMEX is the Commodities Exchanged Inc. and NYMEX is the New York Mercantile Exchange. These two entities merged in 1994.
They are both responsible for trading precious metals. Therefore, any refiner approved by them can sell you gold that you can hold in your account. Precious metals that do not meet these requirements are not allowed to be held in a solo 401k.
How to Get Gold Into Your Solo 401k
Buying and getting precious metals into your solo 401k is easy. All you need to do is open an account with a trustee. You can then contribute or roll over money to fund the account. When your account is funded, you can then use that to buy gold.
Also, note that physical gold and other precious metals must be stored in an approved depository. However, the trustee may keep the precious metal safe at a local bank especially if the trustee is an individual.
A 401k is a retirement account that is meant for employed persons to save and invest towards their retirement. For self-employed persons, however, there is the solo 401k plan. Today, more and more people are investing in precious metals like gold as a way to preserve their wealth. With a solo 401k gold plan, you too can.
If you have this plan, you may be able to invest in precious metals. It will provide you with as long-term investment that offers you stability and helps to hedge your investment against inflation.