Start Investing with your Solo 401k: Buy Cryptocurrency

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Let’s jump back into more ways you can invest with your Solo 401k! In this installment of our series,”Start Investing with your Solo 401k” we’ll cover how to Buy Cryptocurrencies with the Solo 401k. Click the links below to read the other installments in the series:

What are Cryptocurrencies?

There are hundreds of different cryptocurrencies out there. But, you might be wondering….what exactly are they? A cryptocurrency coin is a digital asset programmed to be used in a specific way, and run on a decentralized system.

Each different coin serves a different purpose. However, while most coins have been created mainly to be used as a form of currency, others have been created to be used like a program. One example might be to solve a digital problem or run a series of events. Even though it’s a young asset class, many investors want to use their Solo 401k to buy cryptocurrencies.

IRS Thoughts on Cryptocurrencies

The IRS released notice 2014-21 on March 25, 2014. In that notice they state they don’t exactly treat cryptocurrencies like currency. Instead, they treat crypto more like property (real estate). This sparked a long debate between the Securities and Exchange Commission (SEC) and the Commodities & Futures Trading Commission (CFTC). The point of this discussion? To try and determine under whose domain crypto assets fall.

solo 401k buy cryptocurrency

In notice 2014-21, the IRS states, “virtual currency is treated as property for U.S. federal tax purposes”. Generally, this means any profits made on selling those currencies result in “general tax principles that apply to property transactions apply to transactions using virtual currency”.

To put it plainly, the IRS will charge capital gains taxes on any profits made by selling crypto assets. This could be either short-term capital gains (treated as ordinary income), or long-term capital gains. Typically, you pay long-term capital gains on investments you’ve had longer than 12 months. Expect to pay 15-20% for long-term capital gains taxes.

Steps to Using the Solo 401k to Buy Cryptocurrency

Crypto assets are purchased from a cryptocurrency exchange. Understandably, these exchanges are highly regulated as they are the “onramp” from fiat currency (e.g. dollars, pounds, yen, etc) to crypto assets.

Your 401k trust can open a crypto exchange account so your Solo 401k can buy cryptocurrency.

The crypto exchanges Gemini, Kraken, and Bittrex will allow you to open a crypto exchange account in the name of your 401k trust.

Crypto Exchanges:

If you’re buying crypto with your Solo 401k, you’ll need to find an exchange that will allow trust accounts, and open an account with your Solo 401k trust. We’ve found three sites that will allow this: Gemini, Kraken, and Bittrex.

Gemini:

  • Allows initial funding with USD as well as some of the most popular cryptos (Bitcoin, Ethereum, Litecoin, etc.)
  • Created their own cryptocurrency – the Gemini dollar (a stablecoin)
  • Offers a smart phone app
  • Allows for two-factor authentication to add an extra layer of security
  • Fees starting at $.99 per order

Kraken:

  • Allows initial funding with USD, EUR, CAD as well as some of the most popular cryptos (Bitcoin, Ethereum, Litecoin, etc.)
  • 24/7 Live online support chat
  • Boasted 95% of all deposits stored in cold storage
  • Allows for two-factor authentication to add an extra layer of security
  • Fees starting at 0.16% and decreasing as the size of your order increases

Bittrex:

  • Allows initial funding with cash or coins you already own
  • Live chat available for registered users
  • Allows for two-factor authentication to add an extra layer of security
  • Fees starting at 0% and increasing as the size of your order increases

Buying Cryptocurrencies with a Solo 401k:

Using your Solo 401k to buy cryptocurrencies is easy! Just follow the simple steps below:

  1. Set up Solo 401k
  2. Fund Solo 401k
  3. Open crypto exchange account for the 401k rust at the company of your choosing. Many exchanges now will open a “corporate” or “institutional” account for your trust.
  4. Transfer funds from the 401k trust bank account to the 401k trust crypto exchange account
  5. Buy crypto with 401k trust funds!

Have questions? We’d love to hear from you. We’ve been investing in crypto since 2013 and love finding new alternative investments.

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