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Ryan Carey
March 12, 2021
bitcoin 401k

What Is 401K and IRA

401K is a retirement plan account offered by most private employers to their employees. It allows an employee to commit a certain percentage of their pre-taxed salary into a dedicated retirement account. It is known for its tax advantage and definite contribution. The way it works is that employees make periodic contributions to their dedicated 401k account through an automatic payroll withholding system. Employers also have the option of matching such contributions made by the employee into the 401K account. With a 401K retirement account, your contributions are not taxed, but withdrawals are taxed. The two types of 401K retirement accounts are Traditional 401K and Roth 401K. 

An Individual Retirement Account, also known as IRA, is a type of retirement account that you can use to save and invest for when you retire. IRA accounts also have tax advantages on contributions and savings. IRAs have a variety of investment portfolios you can invest your retirement savings, some of which include Bonds, Stocks, mutual funds, and ETFs. Depending on the type of IRA you go for, you can decide on the type of financial product you want to invest in. The types of IRA accounts  include Roth IRAs, Traditional IRAs, SIMPLE IRAs, and SEP IRAs

401K and IRA are retirement plans you can use for saving and investing for your retirement days. The major difference is that employers open 401Ks, and individuals open an IRA. One of the numerous financial products you can invest in is Bitcoin/Cryptocurrency. With a 401K or IRA account and the right information, you can invest in Bitcoin/Cryptocurrency to multiply your portfolio.  

What Is Bitcoin/Cryptocurrency

Cryptocurrency is a form of digital currency that allows you to make payments online in exchange for goods and services. Different companies have come up with their own cryptocurrency, also known as tokens, in exchange for the goods and services they offer. Cryptocurrency has gained wide acceptance because of its decentralized nature and transaction security made possible by blockchain technology. There are more than 6,700 tokens in the crypto space, and the total worth of all cryptocurrencies as of Feb 2021 is said to be $1.6 trillion. Bitcoin is a type of cryptocurrency and is known as the most popular and most valuable cryptocurrency. It is a medium for exchanging goods and services although it has not been legitimized as a legal tender in most countries around the world.

Bitcoin/cryptocurrency can also be traded and invested just like any other financial commodity. Real currencies are used in exchange for bitcoin or any other cryptocurrency. When you purchase a particular cryptocurrency, you store it in a digital wallet, usually in the form of an app or the vendor through which you bought the token. The intrinsic value of bitcoin/cryptocurrency is the prospect of investment profitability it may bring should you choose to invest. Cryptocurrency trading nowadays can be likened to the days of the gold rush because of the wide acceptability it is receiving and the prospect of different cryptocurrencies increasing in value. 

Using Your 401K and IRA To Buy Bitcoin/Cryptocurrency

Cryptocurrency can be likened to a speculative investment just like other financial market commodities. It may be on a bullish run on certain days or bearish on other days. However, cryptocurrencies, especially the popular ones, are mostly on bullish runs mainly because they are gaining more recognition and acceptance by the day. Because of the decentralized nature, which implies that cryptocurrencies are not regulated by any government agency, cryptocurrencies are worth whatever value buyers and sellers are willing to trade for them. 

401k bitcoin

Bitcoin 401K

401K is a retirement saving and investment account, and you must have been asking yourself if you can trade cryptocurrencies with your 401K account. The answer is Yes, depending on the peculiarity of your account. A lot of people are now buying into the bitcoin 401K idea because of the following reasons and  inherent benefits: 

  • Bitcoin is a 21st-century innovation that people have come to embrace. It has proven to be a wise investment choice for so many people, which is why you should not be left out. Apart from bitcoin, there are other cryptocurrencies that you can invest your 401K savings, some of which include Ethereum, Litecoin, Tether, and Stellar.

  • Bitcoin and other cryptocurrencies give you the opportunity to diversify your investment portfolio. Investment experts always advise not to put all your “investment eggs” in one basket, which is why bitcoin/cryptocurrency presents you with an opportunity for investment diversification because it is a departure from the conventional financial commodities investments like stocks and bonds that people trade and invest. Investing your retirement fund in bitcoin/cryptocurrency expands your investment portfolio and, at the same time, increases the value of your savings and protects your future. 

  • Bitcoin 401K also gives you the advantage of leveraging your bitcoin as a tax-deferred property. What this means is that your bitcoin is treated as personal property. Therefore, all benefits accruable to your property under a 401K account will apply to your bitcoin. Your gains on your bitcoin investment will be tax-free until you make withdrawals. When you take your profit, you can later reinvest your capital in other conventional financial commodities. 

  • With cryptocurrency, you get to do away with middlemen when trading or investing. You have the opportunity to use software that is secure and easy to use. This allows you to take full control of your retirement funds without any recourse to banks or government agencies. Cryptocurrency is decentralized, so your money does not flow through any regulatory body. It does not rely on the performance of the banking system or government agencies.

  • With a bitcoin 401k, you can hedge your retirement savings against inflation. Cryptocurrencies generally become harder to acquire once the supply increases, which is what experts call adaptive scaling. 

  • A bitcoin 401k helps you to hedge against what is known as a stock bubble. Stock bubbles occur when market prices are corrected for overvalued stocks. This is known to happen every 5 to 10 years. Your investments could bear the brunt if they are not in the right portfolio during this period. If your 401K funds are invested in bitcoin, you are insulated from a stock bubble occurrence.

How To Convert Your 401K Funds To Buy Bitcoin

Many of the available 401K schemes do not allow direct purchase of any digital currency. The best way to overcome this is to convert your 401K account into a self-directed digital IRA. Like the name suggests, a self-directed digital IRA allows you to be in charge of your funds. You will be able to choose which investment you think will be profitable for you. Another benefit is that the IRS permits different kinds of investments with an IRA, including bitcoin. Before converting your 401k to buy bitcoin, it is essential to ensure that you are eligible to have an IRA account. Some of the requirements include having a 401K account as a full-time employee of your current or previous employer. Requirements for eligibility usually vary depending on each individual’s retirement plan.

You can convert your 401k savings into buying bitcoin by opening a self-directed digital IRA with your preferred custodian. You can then start the process of converting your 401K savings into a bitcoin-based retirement plan. Your custodian will guide you on how to provide the necessary information needed. It is essential to go for custodians that offer cryptocurrency trading portfolios. After doing this, you can then fund your account by rolling over the funds in your 401k account into the self-directed IRA. After this is done, you can start trading and investing in bitcoin by completing a bitcoin order. It is worthy to note that you will not have access to your retirement funds until you are 591/2 years old. Ensure that your preferred custodian has self-directed IRAs that specialize in bitcoin and cryptocurrency trading. Examples of top bitcoin IRA custodians include CoinIRA, Bitcoin IRA, iTrustCapital, and BitIRA. 

Bitcoin IRAs

solo 401k cryptocurrency

A bitcoin IRA is a type of retirement account that has bitcoin and cryptocurrency investment as part of its investment options. Like a 401K account, you cannot use a regular IRA account to trade and invest in bitcoin and other currencies. You have to convert your regular IRA or open a separate self-directed digital IRA before you can invest in bitcoin and other cryptocurrencies. In other words, you can not add a bitcoin portfolio to a regular IRA that has bonds, stock, mutual funds, or ETFs in its investment portfolio. This is so because IRS classifies cryptocurrencies as a type of property that cannot be managed in a regular IRA. 

How A Bitcoin IRA Works

Like a regular IRA, you can set up a bitcoin IRA with any amount. However, the IRS has set an annual limit of $6,000 for 2020 and 2021 or $7,000 if you’re older than 50 years of age. With a bitcoin IRA, you enjoy tax-free returns on your investments. You also have the option of setting up a traditional account or Roth account with your bitcoin IRA. The difference between these two is that with a traditional bitcoin IRA, you can contribute pre-tax dollars to your investment while the gains are tax-deferred and the withdrawals are taxed. While a Roth bitcoin IRA does not allow for tax breaks on contributions but withdrawals are tax-free.  Both types of accounts have their pros and cons, which you must be researched extensively before choosing. Experts say that with a Roth bitcoin IRA, there may be an edge for investors who believe that Bitcoin will be on a bullish run in the nearest future. Also, if you know you know you are going to fall in the high tax bracket when you retire and start making withdrawals from your retirement account, a Roth bitcoin IRA is your best bet. The nature of a Roth account will ensure that you do not owe any tax on your bitcoin gains, no matter the amount of profit you make. 

How Safe Are Bitcoin IRAs

Like every investment, having a bitcoin IRA has its risks, and it is advisable to prepare your mind for these risks. Some of the potential risks you can encounter with running a bitcoin IRA account include:

  • Bitcoin and other cryptocurrencies are usually susceptible to market price volatility like what is experienced in the traditional financial commodities market. The impact of this is felt when there is a price decline, and you want to make withdrawals on your funds. The wise thing to do is to wait for the market to regulate itself. 

  • Compared to regular IRAs, a bitcoin IRA may be difficult to set up and maintain. For example, a bitcoin IRA may have an initial buy-out fee of 10% or more. This usually depends on the custodian you choose.  What this means is that having a $50,000 self-directed digital IRA may cost you as much as $660 in annual charges. There are other maintenance fees that are usually charged, some of which include transfer fees and holding fees. This may affect your overall returns. 

  • Bitcoin IRAs are known to have investment minimums that you may not be able to meet up with. Bitcoin IRAs investment minimum varies, depending on your bitcoin IRA custodian.

  • There is also the problem of custodians who are not necessarily experts in bitcoin and cryptocurrency trading and investment. Most custodians who offer self-directed digital IRA services are not as grounded as traditional brokerages, investment advisors, and platforms that offer financial services. Another downside is that they are not regulated by government agencies such as FINRA (Financial Industry Regulatory Authority), SIPC (Securities Investor Protection Corporation). They are also not regulated by fiduciary rules that ensure your investment portfolio’s health is considered before investing. This means that you are solely responsible for your bitcoin IRA’s performance regardless of your knowledge of the cryptocurrency market. 


Bitcoin/cryptocurrency presents you with an opportunity to diversify your retirement savings account. Most people are now buying into the idea of investing in bitcoin and other cryptocurrencies with their retirement savings. To join this league of investors, you have to go through the basic process of converting your 401K account or regular IRA into a self-directed bitcoin IRA to be able to trade and invest in the cryptocurrency. However, it is vital to research cryptocurrency and how you can use it to grow your retirement savings. You should also know the pros and cons of having a bitcoin IRA account so you can understand what to expect and prepare for any outcome. Every investment has its inherent risk, so does bitcoin/cryptocurrency. Make sure you choose your custodian wisely by doing your homework and researching the custodian to be sure they are tested and trusted. When it comes to investing in bitcoin/cryptocurrency with your retirement savings, make sure you commit an amount you can lose and think of it as a long-term investment.  

About the author 

Ryan Carey

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