A self-directed solo 401k from My Solo 401k Financial may be invested in bitcoin / cryptocurrency using Coinbase, and many of our clients have been making investments in bitcoin using Coinbase since 2014 when the IRS deemed cryptocurrency property.
What is Cryptocurrency?
Per IRS Revenue Ruling 2019-24:
- Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.
- Cryptocurrency is a type of virtual currency that uses cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain.
Most popular cryptocurrencies:
NOTE: The videos slides have been updated to reflect Coinbase’s updated account setup process.
***HERE ARE THE UPDATE VIDEO SLIDES***: https://www.mysolo401k.net/wp-content/uploads/2021/11/How-to-Open-Solo-401k-Account-at-Coinbase-Update-Oct-2021.pdf
IRS View on Taxation of Cryptocurrency
Steps to Invest Self-Directed Solo 401k Funds Using Coinbase
STEP 1 – Open a Solo 401k
- Confirm that you are eligible (self-employed w/ no full-time W2 employees)
- IRS-approved plan that allows for cryptocurrency investments & provider with experience in helping others invest
STEP 2 – Fund the Solo 401k
- Open a bank account in the name & EIN of the Solo 401k
- Rollover Former employer plan or non-Roth IRA funds and/or make 401k contributions
STEP 3 – Open & Fund Account at Cryptocurrency Exchange
- Open a Cryptocurrency Exchange Account in the name & EIN of the Solo 401k
- Link the solo 401k bank account to the Coinbase account
STEP 4 – Store Cryptocurrency
- Separate and segregated wallet exclusively for Solo 401k investments
- Store in safety deposit box associated with Solo 401k bank account
Solo 401k Bank Account for Cryptocurrency Funding QUESTION
Correct that you need to open a bank account in the name of the solo 401k plan. You can then move applicable funds from the solo 401k Schwab brokerage account that we assisted in opening to the solo 401k bank account. Given the cryptocurrency exchange requirements, you will need to fund the account at the exchange with funds from a bank account in the name of the Solo 401k. The solo 401k bank account is generally linked to the cryptocurrency account that is titled in the name of the solo 401k plan.
Use My Personal Account for Cryptocurrency/Bitcoin Account QUESTION
This confirms that the accounts at the cryptocurrency exchange must be under the name and employer identification number of the solo 401k.
You cannot open an account under your name and Social Security number and deposit and/or hold solo 401k funds as this would constitute a taxable distribution.
Moreover, the cryptocurrency exchanges are now required to report account activity to the IRS with respect to the tax identification number on the account so this means that the exchange would report the activity under your Social Security number such that the IRS would expect you to report the same activity on your personal tax return (which would not be correct if the activity relates to your solo 401k funds).