Gold IRA vs 401k: Should You Have One Or Both?

If you’re looking to invest in a nest egg for spending money when you retire, you will inevitably find yourself choosing between a gold IRA vs 401k plan with vastly different features. These two options are the most popular investment vehicles in the United States, with millions of Americans taking advantage of what each has to offer. Both types of investments outpace the current subscription numbers and projected growth rates of nearly every other retirement savings strategy in the market.

According to the United States Census Bureau, about 32% of American professionals invest in a 401k, and around 12% own gold. The only precious metals investment that’s more popular than gold is silver, which may be due to its relative cost-efficiency. About 14.7% of working adults in the U.S. own silver, and these numbers continue to expand as the global markets fluctuate with climate change, unrest, COVID-19, and many other uncertainties.

The median age of investors is decreasing, partly thanks to more data about retirement plans becoming available on the internet. However, financial literacy is still a minefield for many people who want stable retirement plans. New, attention-grabbing investment vehicles pop up daily, and it is not easy to weigh the benefits and viability of options like decentralized finance, NFTs, and cryptocurrency.

In this article, our Oxford Gold Group experts differentiate between the gold and precious metal IRAs and traditional 401ks, including which might be more suitable for your risk appetite, financial goals, and long-term portfolio. If you’re looking for more information about stocks and bonds and other IRS-approved retirement savings plans, give us a call for advice on where to begin.

What Is The Primary Difference Between a Gold IRA vs 401k?

Creating a dependable retirement plan is one of the first tasks people think about as they leave college. Nobody wants to work forever, no matter how much they love their job or the degree of loyalty they feel toward their employers. The two major options are gold individual retirement accounts and 401k investments.

What is a Gold IRA?

The American government gives people tax advantages when they invest for their retirement through one of the oldest financial instruments you can find: the Individual Retirement Account (IRA).

An IRA functions like a regular savings account at a bank, but there are several key differences, including:

  • Most IRA selections come from third-party private investment institutions, even though they have similar characteristics to a 401k.
  • Only employers offer the option for a 401k, but you can obtain a gold IRA through thousands of online brokerages, banks, and personal brokers.

IRAs allow you to save for retirement by removing a significant amount from your annual taxable income. Money that you invest into an IRA will become non-taxable until you withdraw it, at which point, it becomes subject to your ordinary income tax rate. You can also invest in an IRA and a 401k plan simultaneously to minimize the risk of losing on investment bets.

IRAs are not investments in themselves but a vehicle that allows you to hold a commodity of your choosing. Most Americans use an IRA to put money into mutual funds and other long-term investments with safe, measured returns, such as gold. A gold IRA is an Individual Retirement Account that invests solely in gold, long considered a reliable hedge against inflation.

What is a 401k?

The 401k plan earns its acronym from the United States Internal Revenue Code number 401. The code allows corporations and small businesses to offer tax-advantaged savings to their employees. The idea of a gold IRA vs 401k is that the latter maximizes the employees’ longevity within a company. A business expends considerable resources in training and upskilling employees, and it is a waste when human capital like this dissipates due to preventable attrition.

The 401k plan incentivizes employees to stick around for longer, possibly until retirement, so that the company can benefit from the person’s acquired skills and experience long-term. A typical 401k plan is an employer-to-employee sponsorship program, which is why you do not get it from an institution that doesn’t employ you. You can also work until retirement without investing in a 401k, although financial advisors don’t recommend it unless you have an alternative, like a gold IRA.

There are two types of 401k investments:

  • Traditional 401ks
  • Roth 401ks

Employers in the United States most frequently offer a traditional 401k plan. It allows employees to take a portion of their gross income and invest it into a 401k account each month to help them save on income taxes in the same way as an IRA (declaring their annual taxable income post-contribution). For example, if your gross income is $50,000, and you invest $5,000 in your 401k, the government should only tax $45,000 of your income.

When you withdraw money from a traditional 401k plan, the government will treat it as taxable income for the current year. Inflation and rising state tax rates usually mean this is higher by the time you withdraw, whereas a Roth 401k lets you pay regular income tax from your gross income at the outset. The result of the Roth 401k is that the employee does not see any tax savings now but will avoid higher taxes and additional fees upon withdrawal after they retire.

Not as many employers offer Roth 401ks, perhaps, because it does not seem as attractive to the average employee to save without the reward of tax reductions. However, Roth 401k options are beneficial for those expecting to retire in higher income brackets by the end of their careers as they will avoid those corresponding withdrawal taxes in the future.

The Pros and Cons of Investing in a Gold IRA vs 401k

man with pros and cons

Wise retirement savings strategies are vitally important, but which is better between a gold IRA vs 401k investment?

401k Pros

401k Tax Advantages

Some insurers offer life insurance policies with an investment component, famously known as a Variable Universal Life or VUL product. The 401k is a better retirement savings vehicle than the VUL; it does not require premiums, taxes, or extra fees on top of what you put into your investment account. 401ks can also lower your tax bracket for savings during your employment period.

Control Over Money with 401k

A 401k balance might not look like much at first, but compound interest accelerates significantly after one or two decades. Many companies offer 401k matching incentives, meaning they’ll match what you put into your 401k account up to a certain amount so that these portions continue to grow as much as possible. You can take control of your money and invest as much as they’ll match, effectively doubling your savings and its compound growth payoff.

401k Cons

Tax Penalties for Pulling Out of the 401k Early

Most people consider a 401k safe, but it has the same risks as any other investment. The writers of the U.S. Internal Revenue Code designed the 401k to give people a route to retirement. So, it discourages early pull-outs and withdrawals—it is not a debit savings account with a great interest rate.

You will also incur a 10% early distribution tax on top of the income tax portion for early withdrawal (unless you have become permanently disabled, are older than 59-and-a-half, or otherwise unable to work for the rest of your life. Roth 401k account holders won’t pay these extra taxes as long as they meet the Qualified Distribution requirements from the IRS.

Gold IRA Pros

Precious metals stocks and bonds are some of the safest long-term investments in the market. Most companies that offer gold IRAs also provide investors with Roth and traditional investment options, mimicking the 401k structure.

  • Gold IRAs are growing in popularity but here are some considerations:
  • Gold IRAs are More Accessible

Today’s uncertain job market and emerging gig economy mean that retirement savings seem more flexible in gold IRAs vs 401k restrictions. Unlike a 401k account, an IRA can still grow in value even if you change employers, face dismissal, or cannot work. If you make regular contributions from earned income, the portfolio expands.

Reliable Hedge Against Inflation with Gold

Experienced investors and brokers almost unanimously hedge against inflation with gold or silver. In particular, gold’s demand in thousands of commercial and industrial uses makes it more reliable compared to more expensive minerals, such as platinum and rhodium. Gold is in microchips, shipping and aerospace components, and dental work, and investing in it gives you a physical token that has retained value for centuries.

Gold IRA Cons

Gold IRAs Do Not Permit Removing Bullion for Safekeeping

When you buy gold for the purpose of an IRA, your investment company will allow you to choose between three options:

  1. Gold company stock
  2. Exchange-traded funds (ETFs) following a gold index
  3. Bullion or coins

Coins and bullion are the most popular route, and this tangible aspect of the investment is one of the key differences between a gold IRA vs 401k accounts. However, you won’t be able to take your gold IRA into a private vault; it remains in IRS-sanctioned depositories.

Plan For Your Retirement with Oxford Gold Group

old couple enjoying vacation after getting their investments

Do you want a dependable retirement plan with rewarding tax advantages? That is the dream for most employees in increasingly volatile markets.

If you need advice from the experts, call Oxford Gold Group at 833-600-4653 today. We can answer all your questions surrounding a gold IRA vs 401k retirement investment vehicle or any other commodity-based decision.

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