Can You Buy Gold in Your Fidelity 401(k)?

As investors seek to diversify their retirement portfolios, the question of whether one can buy gold within a Fidelity 401(k) plan has gained prominence. While a 401(k) primarily offers traditional investment options such as stocks, bonds, and mutual funds, the possibility of including alternative assets like precious metals has intrigued many. In this article, we will delve into the topic to explore whether you can buy gold in your Fidelity 401(k), the mechanisms involved, potential benefits and drawbacks, and considerations to keep in mind.

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Understanding Fidelity 401(k) Plans

A Fidelity 401(k) plan is a type of employer-sponsored retirement account that allows employees to contribute a portion of their pre-tax income towards retirement savings. These contributions are invested in a variety of assets, with the aim of growing the funds over time to provide for a comfortable retirement.

Traditional Investment Options in a Fidelity 401(k)

Fidelity 401(k) plans are typically associated with conventional investment options such as stocks, bonds, and mutual funds. These assets are managed by investment professionals and are subject to market fluctuations. The plan administrator, which may be your employer or Fidelity, offers a range of investment choices that align with your risk tolerance and financial goals.

Adding Alternative Assets: Precious Metals

In recent years, Fidelity and some other retirement plan administrators have expanded their investment options to include alternative assets like precious metals, particularly gold. This addition caters to investors who are looking to diversify their portfolios further and potentially hedge against economic uncertainties.

Investing in Gold within a Fidelity 401(k)

Investors interested in adding gold to their Fidelity 401(k) have a few avenues to consider:

  1. Gold ETFs (Exchange-Traded Funds): Some Fidelity 401(k) plans offer the option of investing in gold ETFs. These funds aim to track the performance of the gold market and provide a way to indirectly invest in gold without owning physical bullion.
  2. Gold Mutual Funds: Similar to gold ETFs, gold mutual funds allow investors to participate in the performance of gold without directly owning it. These funds are managed by professionals and invest in a variety of gold-related assets.
  3. Self-Directed Brokerage Account: Some Fidelity 401(k) plans allow participants to open a self-directed brokerage account within their plan. This option permits you to have more control over your investments, including the ability to buy individual stocks, bonds, and potentially invest in precious metals like gold.

Benefits of Adding Gold to Your Fidelity 401(k)

  1. Diversification: Gold has historically shown a low correlation with traditional assets like stocks and bonds. Adding gold to your portfolio can help diversify risk and potentially reduce the impact of market volatility.
  2. Hedge Against Inflation: Gold is often considered a hedge against inflation, as its value tends to rise during times of economic uncertainty and currency devaluation.
  3. Preservation of Wealth: Gold’s intrinsic value and limited supply can help protect your wealth during market downturns or geopolitical turmoil.

Considerations and Drawbacks

  1. Liquidity: While gold ETFs and mutual funds offer relatively high liquidity, owning physical gold can be less liquid and involve storage costs.
  2. Volatility: While gold can act as a hedge against certain economic events, its value can also be volatile in the short term.
  3. Regulations: Precious metals investments in retirement accounts are subject to specific regulations, so it’s important to understand these rules and potential tax implications.

Can I directly purchase physical gold and store it in my Fidelity 401(k)?

Generally, Fidelity 401(k) plans do not allow participants to buy and store physical gold within the account. However, some plans might offer a self-directed brokerage option that allows you to invest in individual stocks, including gold-related companies. For direct ownership of physical gold, you might need to explore other investment avenues like a precious metals IRA.

What are gold ETFs, and can I invest in them through my Fidelity 401(k)?

Gold ETFs (Exchange-Traded Funds) are investment funds that track the price of gold. They can be traded on stock exchanges like individual stocks. Some Fidelity 401(k) plans offer the option to invest in gold ETFs. This allows you to gain exposure to gold’s price movement without owning physical gold.

How do gold mutual funds work within a Fidelity 401(k)?

Gold mutual funds invest in a variety of gold-related assets, such as gold mining stocks and shares of companies involved in the gold industry. They aim to reflect the performance of the gold market. If your Fidelity 401(k) offers these funds, you can invest in them to indirectly participate in gold’s potential price movements.

Are there tax implications when buying gold in a Fidelity 401(k)?

The tax implications of investing in gold within a Fidelity 401(k) are similar to those of other investments in the plan. Generally, contributions to a traditional 401(k) are made with pre-tax dollars, and taxes are deferred until you make withdrawals in retirement. Roth 401(k) contributions are made with after-tax dollars, and qualified withdrawals are tax-free. Consult a tax advisor to understand how your specific investments might impact your tax situation.

Is gold a good investment for retirement within a Fidelity 401(k)?

The suitability of gold as an investment within your Fidelity 401(k) depends on your financial goals, risk tolerance, and overall portfolio diversification strategy. Gold can offer benefits such as diversification and potential hedging against economic uncertainties, but it also comes with risks, including price volatility. Consulting a financial advisor can help you determine whether including gold aligns with your retirement goals.

Can I transfer existing gold holdings into my Fidelity 401(k)?

Transferring existing physical gold holdings directly into a Fidelity 401(k) might not be possible due to plan restrictions. However, you might consider selling the gold and using the proceeds to invest in gold-related funds offered within your plan.

Are there fees associated with investing in gold within a Fidelity 401(k)?

Like other investments within a 401(k) plan, there might be administrative fees, management fees, and expense ratios associated with gold-related investments such as ETFs and mutual funds. These fees can vary based on the specific investment options available within your plan.

Can I change my gold investments within my Fidelity 401(k) over time?

Yes, you typically have the flexibility to adjust your investment choices within your Fidelity 401(k) over time. You can rebalance your portfolio, switch between investment options, or make changes based on market conditions and your financial goals.

Remember that while this information is accurate as of my last knowledge update in September 2021, investment offerings and regulations may change over time. Always check with Fidelity or a financial advisor for the most up-to-date information tailored to your situation.

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In conclusion, the inclusion of gold as an investment option in your Fidelity 401(k) plan depends on the plan’s specific offerings and your investment preferences. While you may not be able to buy physical gold directly, options like gold ETFs and mutual funds provide avenues to gain exposure to this precious metal. Before making any investment decisions, it’s crucial to research and consult financial advisors to ensure that your investment choices align with your long-term retirement goals and risk tolerance.