Crypto Roth IRA – How to save $61k per year in a Crypto Mega Backdoor Roth IRA

Harvard Law Attorney George Blower reviews how to use a Mega Backdoor Roth Solo 401k to save up to $61k to a Roth IRA and then invest in bitcoin and other cryptocurrencies.

Benefits of
Mega Backdoor Roth Solo 401k to Crypto IRA

  • Contribute up to 61,000 or $67,500 if age 50 or older for 2022
  • Potential for Tax-free growth in ROTH

Find a 
Mega Backdoor Roth Solo 401k

  • Qualify:
    • Self-employed with no full-time w-2 employees
  • Solo 401k Provider:
    • Offers a plan that allows for voluntary after-tax contributions and in-service distributions (e.g., conversion or rollover)
    • Assists with establishing required sub-accounts (Pre-Tax, Roth & Voluntary After-Tax)
    • Provides ongoing compliance support (required 1099-R reporting)

Contribution Example Scenario

  • Assumptions
    • Self-employed business taxed as an S-corporation
    • One Participant
    • Goal is to Voluntary After-Tax Contributions and then convert to Roth IRA
    • $100,000 of w-2 wages from the self-employed business
  • How much can I contribute?
    • Employee (Pre-tax or Roth): $0 [100% of w-2 wages up to $20,500 for 2022 reduced by any contributions made to another retirement plan unless 457 governmental plan]
    • Employer Pre-tax Contributions: $0 [25% of w-2 wages provided total contributions don’t exceed overall limit]
    • Voluntary After-Tax: $61,000 for 2022; [Lesser of Self-employment compensation or the overall limit of $61,000 for 2022 reduced by any employee or employer contributions made to the Solo 401k; Note: limit does not increase if you are 50 or older]

How do I make contributions?

  • To make the contribution, you will make the check payable in the name of the solo 401k and write “Annual Contribution” on the memo section of the check. 
  • Electronic Transfer is also acceptable. 
    • Check with the financial institution that holds the accounts.
    • Note: Other than Fidelity most brokerage firms don’t allow electronic deposit.
  • Each participant deposits his/her contributions into separate sub-accounts
  • Pre-tax, Roth and after-tax funds must go into separate sub-accounts.

Steps to Invest via Crypto Roth IRA LLC

STEP 1 – Open an IRA LLC

  • Choose a Self-directed IRA custodian/trust that allows for LLC investments
  • Choose an IRA LLC provider with experience in helping others invest

STEP 2 – Fund the IRA LLC

  • Rollover After-tax Solo 401k funds to self-directed Roth IRA
  • Open a bank account in the name and EIN of the IRA LLC & invest self-directed Roth IRA funds in LLC

STEP 3 – Open & Fund LLC Account at Cryptocurrency Exchange

  • Open a Cryptocurrency Exchange Account in the name & EIN of the LLC owned by your Roth IRA
  • Transfer funds from the IRA LLC bank account to the account at the crypto exchange

STEP 4 – Store Cryptocurrency

  • Separate and segregated wallet exclusively for IRA LLC investments
  • Store in safety deposit box associated with IRA LLC bank account

Practical Tips:
Investing IRA LLC funds in cryptocurrency

Opening an Account at a Cryptocurrency Exchange

  • Name and EIN of the LLC owned by your IRA (consider tax reporting by the exchange)

Funding an Account at Cryptocurrency Exchange

  • Confirm that the account can be funded with Fiat money
  • Wire/ACH funds from a bank account in the name of the LLC owned by your IRA
  • Do not fund from personal account per IRA LLC funding rules

Private Transactions

  • Confirm that the seller or buyer is not a disqualified person to ensure that you don’t commit a prohibited transaction
  • Do not combine or “tie” the transaction with non-retirement transactions

Continue the discussion in our My Community where our Owners host a daily LIVE webinar where you can ask questions and you can post questions in our forums: Cryptocurrency Forum

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About George Blower

I have the privilege of educating our clients about our products and services so that they can make informed and confident decisions about their financial future. Prior to joining My Solo 401k Financial, I served as the general counsel for a subsidiary of a Fortune 500 financial services company. Learn more about George Blower and My Solo 401k Financial >>

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