Cryptocurrency Falls Under Alternative Investment Type
Similar to investing retirement funds in other alternative investments like real estate and precious metals, for example, it is important to ensure that proper record-keeping and other rules applicable to solo 401k investments are followed when investing in cryptocurrency / bitcoin.
Items to Consider When Investing in Cryptocurrency / Bitcoin
We have clients that have established individual accounts at Coinbase and then linked the account to their Solo 401k bank account. Please keep in mind that (i) no non-retirement funds should be deposited into the account; and (ii) if both business partners or spouses are participating in the solo 401k plan, both business partners or spouses need to keep their funds in separate accounts.
Bank Account for Making the Investment: Based on experience with clients who want to invest in cryptocurrency / bitcoin, you would need to setup a bank account for the solo 401k trust for the main purpose of linking the Trust bank account to the online exchange for ease of transferring funds to and from the online exchange account. Brokerage accounts for retirement accounts like a solo 401k trust have restrictions that limits you from transferring funds to the cryptocurrency exchange easily.
- Funding the account:
- some providers don’t allow for FIAT money (US dollars) to be transferred to the account
- If you have an existing “Non-Prototype” brokerage account at Fidelity for the solo 401k that you opened with us, Fidelity won’t allow for ACH, but the funds can be wired from the Fidelity “Non-Prototype” brokerage account. Please let us know and we can assist in filling out the wire directive.
- mining equipment must be in the name of the Solo 401k
- please note that this could subject the income generated from the mining to unrelated business income tax if the mining is deemed to constitute a trade or business.
- Wallet must be in the name of the Solo 401k
- Multiple accounts:
- just like other accounts, need separate account for Spouse, Roth 401k funds, etc.
If I create a solo 401k, can I transfer cryptos I already own into it?
No as the rules do not allow for a transfer of an asset that you already own to a solo 401(k) plan. This would be considered a prohibited transaction.