Buy Precious Metals With Your 403(b) To Safeguard Your Retirement
403(b) plans are retirement savings plans sometimes offered through state and local governments and municipalities, as well as some non-profit organizations. While it makes sense that an employee would jump onto whatever retirement vehicle their employer offers, this doesn’t mean that you have to remain with the same plan forever.
Many people start out with a 403(b) plan, then reallocate it into diversified assets that can include precious metals placed into a special type of IRA. In this article, we’ll review the essentials behind a 403(b) plan, then discuss how you can use your 403(b) to purchase metals like gold and silver through a Precious Metals IRA.
(To jump straight into how to roll over your 403(b), click here).
What is a 403(b) plan?
A 403(b) plan is a specific type of retirement plan that bears tax advantages, and that can be offered primarily to employees of 501(c)(3) tax-exempt organizations, public schools, and churches.
403(b)s were originally introduced in 1958 when Congress passed changes to the tax code. Public schools were the first to offer 403(b) plans to their employees in 1961, and when they emerged they were designed to just offer certain annuities. That restriction lent itself to the more common name of “tax-sheltered annuity plans” by which 403(b)s are still sometimes called.
A number of changes over the years have changed the shape of these plans somewhat. The Employee Retirement Income Security Act of 1974 (ERISA) forced all plans that offer employee-matching contributions to meet certain oversight rules. This, in effect, created two types of 403(b) offerings: one required to follow the ERISA guidelines and one that isn’t.
In 2005, under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), the non-ERISA version of 403(b)s were finally given some protection against creditors.
The 403(b) plan is more common than you might think, with about one in five U.S. employees owning one.
What are the benefits and perks of a 403(b) plan?
A 403(b) can only be offered by a state or local government or a non-profit organization. This makes these plans popular offerings for employees at schools, universities, public hospitals, and libraries. There is one subtype of 403(b) designed for religious institutions as well, though it is far less common.
The 403(b) plan can offer several incentives to its owners.
- Contributions are tax-deferred. Employees with a 403(b) plan can contribute a portion of their pretax income into it, allowing them to build up their savings faster. This also can reduce that employee’s annual tax bill, as it technically reduces their adjusted gross income by the amount contributed. This pretax savings, however, is eventually taxed upon withdrawal.
- Roth account options. Owners of a 403(b) plan may contribute to a Roth account, which basically flips around the Traditional tax timeline; contributions into one of these accounts come from after-tax income. This means that when it is time to withdraw from these accounts, those distributions are tax-exempt.
For those with significant savings and incomes that put them in a higher tax bracket, a Roth can save plenty of taxes in retirement.
- Higher contribution limits. 403(b)s, like 401(k)s, set the limit of annual contribution at $19,500 (2020). An additional $6,500 (2020) in contributions are allowed after the age of 50. While the same as 401(k)s, this limit is still significantly higher than limits imposed on most IRAs.
- Employer matching – 403(b)s come in two distinct versions. One of these offer employer-matching contributions, making it ERISA-regulated and letting employees build up additional retirement savings—although this also brings some rules with it. While your employer can set their own matching rules, commonly employers choose to match 50% of contributions up to six percent of the employees’ income.
- 15-Year Rule – Unlike 401(k)s, 403(b)s offer an additional “loyalty reward” in the form of the 15-Year Rule. If an employee with a certain 403(b) has worked for the same employer for 15 years, they can contribute an additional $3,000 per year up to a lifetime limit of $15,000.
You may see that 403(b)s look very similar to 401(k)s, but they do offer their own benefits and operate differently.
What are the rules and limitations of a 403(b) plan?
Congress has made slight changes to 403(b) plans over the years since their 1958 birth, including the ERISA and BAPCPA laws noted above.
Others like the recently-passed (as part of a recent appropriations bill) Setting Every Community Up for Retirement Enhancement Act (SECURE Act) have continued this trend. The SECURE Act loosened some rules about the types of annuities 403(b) plans can include, as well as raised the age for required minimum deductions (RMDs).
Some of the most critical rules and limitations of a 403(b) include:
- Coordinated contributions. Some universities and other governmental employers offer both 403(b)s and 401(k)s. While an employee can contribute to both plans, the total aggregate amount is still capped at only $19,500.
- 10% tax penalty. 403(b)s are subject to the same 10% early withdrawal fee as 401(k)s. Meaning, if you need to withdraw savings from a 403(b) plan before the age of 59½, you’ll have to pay 10% in fees in addition to any taxes that you would normally owe.
- Non-ERISA? No discrimination checks. 403(b)s aren’t subject to nondiscrimination testing. If an employer doesn’t match contributions, the plan is likely a non-ERISA one and doesn’t require nondiscrimination testing. This means that retirement plan benefits don’t have to be offered to all employees.
The last, but possibly the most important, point that needs to be made here is not so much a rule, but a disadvantage. 403(b) plans, since they came about originally as only for annuities, offer very limited asset options: the conventional stocks, funds, and bonds.
Most 403(b) plans are administered by insurance companies. 401(k)s, on the other hand, tend to be run by mutual fund companies. This distinction is important because insurance companies have even less incentive to open up as many options for asset allocation, potentially limiting 403(b) plans further.
Why should I buy precious metals for my retirement savings?
Precious metals such as gold, silver, platinum, and palladium can be valuable additions to a retirement portfolio. Unlike fiat currency and associated assets, precious metals benefit from carrying inherent value, with gold being perhaps the most popularly known example of material worth.
Historically, gold has been celebrated for its worth, from backing currencies through its use in jewelry. Precious metals like silver and platinum even serve industrial uses, and as such are wielded as powerful trade and economic tools. Investors worldwide follow the price fluctuations of precious metals as one measure of economic health and indicator of trends.
For individuals like you, here are some ways that precious metals can enhance your retirement savings.
- Limited supply means value retention. Since there is a finite supply of each precious metal, they will continue to be highly valued. In fact, the limited supply of gold was one reason why the United States used to use gold to back the dollar and set its value.
- Diversification. The saying goes, “never put your eggs in one basket”; why would you place all of your retirement savings into one asset? Diversification is one means of risk management, since your gold and silver can act as a hedge to protect your retirement, even if economic crisis or market crashes should hit.
- Guard against inflation. For a wide number of reasons, the government may print more money and drive inflation, effectively devaluing your 403(b) and other retirement vehicles in the meantime. Adding in alternative assets like precious metals into your retirement portfolio could help protect its worth.
- Tax benefits. You know that IRAs carry tax benefits, and that you can pick a plan that lets you pay taxes upfront or upon withdrawal/distribution. But if you tried to reap rewards from owning precious metals outside of an IRA, you’d face additional costs like capital gains taxes as the price fluctuates.
As markets become more uncertain, the security and stability of assets like gold and silver can offer a safe haven not found elsewhere.
How to buy precious metals with a 403(b) plan
The set of retirement savings plans offered by employers is usually limited in the number of options available, and so employees will seize upon whichever plan is available. But remember, just because you started with a 403(b) plan doesn’t mean it’s the only retirement plan you can have.
Many individuals choose to reallocate some or all of their 403(b) plans into other retirement accounts, varying based on individual circumstances and retirement goals. One option is to roll over funds from a 403(b) into a Precious Metals IRA, giving you the potential benefits of diversification and stability mentioned earlier.
A Precious Metals IRA is actually a Self-Directed IRA, which is an IRS-approved type of retirement account that is not bound to the limited range of assets that a conventional IRA can hold (funds, stocks, and bonds), but goes beyond to hold alternative assets like precious metals. Knowing this can help you more easily navigate eligibility rules and rollover steps.
Am I eligible to roll over my 403(b) plan?
As long as it complies overall with IRS guidelines, each individual 403(b) plan can be written to have its own rules and stipulations. Therefore, the most accurate answer to the question of eligibility requires a case-by-case evaluation. Fortunately, Birch Gold pairs you with a Precious Metals Specialist who can help you determine whether your retirement account(s) are eligible for rollover.
One common caveat is also seen with 401(k) plans. You might not be able to roll over your 403(b) plan if you are still working for the employer who set you up with the account. And although with some retirement accounts being over the age of 59.5 gets this rule waived, this usually doesn’t happen in the case of 403(b) plans.
As you set up your retirement savings, we recommend you speak with a tax professional who can review your entire financial situation and give you up-to-date tax advice.
How do I open a Precious Metals IRA with Birch Gold Group?
If you currently have a 403(b) plan that you’d like to roll over into a Precious Metals IRA, there are a few steps you’ll need to walk through. You will be paired up with a designated Precious Metals Specialist, who will be on hand to share your options, guide you through the process, and help you find the answers to any questions you may have.
There are a number of IRAs one in that position might consider, all eligible for 403(b) rollovers, such as Traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. That means hard-saved money in 403(b) plans can be rolled into a Precious Metals IRA as well.
The steps are straightforward, especially when rolling over from a 403(b) plan:
- Open a new SDIRA. As noted earlier, a Precious Metals IRA is actually the result of placing precious metals in a Self-Directed IRA (SDIRA), an IRS-approved retirement account that moves past what a conventional IRA lets you hold (funds, stocks, and bonds) and into alternative assets like gold and silver.
Just like how a conventional IRA can come in different types (Traditional, Roth, SEP, and SIMPLE), your SDIRA is available in these different forms. Ask your Specialist if you’d like to talk through the different types, as well as to learn about your different custodian options.
While you are welcome to use any IRS-approved custodian that you’d like, we typically work with our custodian partners, who are specialized in precious metals and maintain A+ ratings with the Better Business Bureau. Our partners include Equity Trust Company and STRATA Trust Company.
- Roll over funds from your 403(b) and/or other eligible accounts. Depending on the accounts you hold, your retirement plan, and your eligibility, you might have many options for how to fund your new Precious Metals IRA.
Again, remember that your Precious Metals Specialist is on hand to help you navigate your options and any paperwork needed, such as any forms your old custodian might need you to complete.
- Choose your precious metals. Gold and silver might be the most well-known, and frequently are the first selections individuals make when buying metals in their Precious Metals IRA. However, palladium and platinum are also offered, and make excellent choices for retaining value given their history, finite supply, inherent value, and practical applications.
And, of course, all metals offered by Birch Gold Group are IRS-approved.
- Make your purchase. With your paperwork complete and your purchase selections mapped out, your Specialist will confirm your selections with you. Once you give them the green light (by approving the transaction), they will submit everything for you.
- Store your savings in a depository. Once your purchase has been made, your metals will be stored in the depository of your choice, from a list of approved and fully insured options. We usually work with Delaware Depository, America’s largest depository for precious metals, or Brinks Global Services, the global leader in providing secure logistics.
- Keep track of your Precious Metals IRA. You can always reach out to your Precious Metals Specialist for an up-to-date quote on how your IRA is currently valued, or to initiate any transactions.
At each step, your Birch Gold Specialist can guide you through everything you need to begin turning your 403(b) savings into gold.
Call us today at (800) 355-2116 with any other questions you may have, or to start a Precious Metals IRA.