Crypto and Retirement Accounts: 401(k)s and IRAs

Using tax-advantaged retirement plans, investors can now obtain exposure to cryptocurrency in a variety of ways.


In the United States, some of the most common vehicles for saving for retirement are a 401(k) and an IRA. As blockchain technology becomes more mainstream worldwide, an increasing number of investors looking to save for retirement are also considering crypto investment options.

A growing number of financial technology (FinTech) companies and legacy financial institutions are now offering crypto-based 401(k) or IRA products. Here are some of the most popular methods for investing in a crypto retirement plan.


Crypto Retirement Plans Are Growing

As cryptocurrencies continue to gain traction as a global economic pillar, more and more traditional investors are looking into crypto and digital asset investments, even as part of their retirement plans.

As a result, several service providers for the two most common forms of retirement accounts in the United States – Individual Retirement Accounts (IRAs) and 401(k)s – are adding crypto IRAs and crypto 401(k)s to their portfolios.

Investors in the United States presently have $22.5 trillion USD in IRAs and 401(k)s as of mid-2021. For both crypto-native service providers and forward-thinking conventional financial firms, they represent a massive emerging market.

In a study of over 500 financial advisers conducted by the Financial Planning Association in 2021, 14 percent stated they already invest in or suggest cryptocurrencies to their clients – a significant increase from the 1% who claimed the same thing in 2019 and 2020.

Investing in Bitcoin 401(k) Accounts and Other Crypto 401(k) Plans

Many firms give their employees a 401(k) plan, which is a tax-advantaged retirement account.

Automatic payroll withholdings allow employees to contribute to their 401(k) accounts up to a pre-determined annual limit, and employers often match some or all of these contributions. A standard 401(k) plan’s investment earnings are not taxed until the person withdraws the money when they retire.

Employees can only invest in mutual funds and exchange-traded funds in most 401(k) plans (ETFs). If your employer offers a self-directed 401(k), you may be able to deploy funds directly to alternative investment vehicles like cryptocurrency.

In addition, 401(k) plans typically have higher annual contribution limits than IRA accounts, which might be advantageous for investors looking to dramatically expand their crypto exposure in a short period of time.

In addition, a number of FinTech businesses have begun to offer institutional clients crypto-specific 401(k) plans. Bitwage introduced the world’s first Bitcoin 401(k) plan in March 2021, in addition to its bitcoin payroll services.

Another 401(k) provider, ForUsAll, has announced that employees will be able to invest up to 5% of their 401(k) contributions in popular cryptocurrencies such as bitcoin (BTC), ether (ETH), and litecoin (LTC). ForUsAll is only responsible for a fragment of the $22.5 trillion retirement account market, with $1.7 billion in assets.

However, as public interest in digital currencies grows, many other 401(k) providers are considering launching their own crypto retirement plans.

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Investing in Bitcoin IRA Plans and Other Crypto IRAs

An Individual Retirement Account (IRA) is a tax-advantaged account that allows investors to save for retirement while earning tax-free growth or deferring taxes.

Crypto is normally classified as the property in IRAs, and revenue from buying or selling crypto through an IRA is usually considered as a capital gain, which can be tax-free or tax-deferred depending on the type of IRA.

There are various distinct types of IRA accounts, and, like 401(k)s, most IRA investment options are restricted to very conservative financial items. As a result, when it comes to investing in cryptocurrency through an IRA, you have two options:

Self-Directed IRAs (SDIRAs)

SDIRAs allow investors to participate in asset types such as real estate and precious metals that are normally not available in traditional IRAs. Cryptocurrencies are being added to the list of investment alternatives by an increasing number of SDIRA providers.

Kingdom Trust, one such IRA custodian, now offers 20 cryptocurrencies in its Choice IRA, and as of mid-2021, nearly 10% of the $17 billion in assets that Kingdom Trust handles for its clients is invested in crypto.

Investing in cryptocurrency through an SDIRA, on the other hand, necessitates some work on the part of the investor. You must invest in a crypto IRA through a limited liability company (LLC) and place your orders through a cryptocurrency exchange that is compatible with your crypto IRA provider in order to hold assets in a crypto IRA. To be more explicit, you must:

  1. Set up an SDIRA with a service provider that allows you to invest in cryptocurrency and fund it.
  2. Form and register a limited liability corporation (LLC) that is owned entirely by the SDIRA and enjoys the same tax benefits as the SDIRA.
  3. Using the funds from your SDIRA, open a business checking account for the sole purpose of investing in crypto and any other alternative assets permitted by your SDIRA provider.
  4. To begin trading, create an account on a cryptocurrency exchange using the name and tax number of your IRA LLC. Depending on your SDIRA provider, you may also be able to buy and sell crypto through brokers or invest in a private placement fund that contains bitcoin.

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Crypto-Specific IRAs

Aside from SDIRAs, investors can choose from a growing number of IRA providers that specialize in crypto investments. It’s worth noting that when you invest in crypto through an SDIRA, you keep possession of your private keys, whereas most non-SDIRA crypto IRAs operate as fund custodians with direct authority over your crypto wallets.

As custodians, these service providers can also assist you in regaining access to your crypto IRA account if you lose your password.

The investment process for this form of crypto IRA is similar to that of an SDIRA, with the exception that you do not need to set up an LLC to start trading and investing in cryptocurrency. Instead, you can open an IRA with a service provider, then use your account information to open and fund an account with a partner crypto exchange and start trading right away.

Crypto IRAs are available from a variety of crypto-native firms, including BitcoinIRA and BitGo, as well as from a number of traditional retirement fund providers.

Directed Trust Company, for example, offers a dozen different crypto IRA options, while Madison Trust Company, one of the world’s largest IRA providers, now has a dedicated crypto IRA that allows consumers to invest in BTC, bitcoin cash (BCH), ETH, LTC, and USDC.

Key Considerations When Selecting Crypto Retirement Plans

Investing in bitcoin and other cryptocurrencies for retirement can help you diversify your portfolio while also potentially increasing your earnings.

On the other hand, it may increase the risk in your retirement portfolio. Additionally, IRAs that allow you to invest in cryptocurrency may have significant fees to fulfill the IRS’s special security and custody requirements as well as additional reporting obligations. BitcoinIRA, for example, charges a $240 annual account fee and charges an average of 1% and 5.5 percent when users sell or acquire cryptocurrency.

Furthermore, setting up and funding an SDIRA can cost several thousand dollars, and if you prematurely remove assets from a digital retirement account, your winnings will most certainly be taxed at the ordinary capital gains rate.

The total of these expenditures may virtually cancel out the tax advantages afforded by IRA accounts, so it’s critical to know exactly what fees you’ll be charged before opening any retirement account.

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Don’t Take Your Crypto Retirement Planning Lightly

Every cryptocurrency investor should thoroughly research their possible investments and utilize only trustworthy exchanges and service providers that adhere to all local and federal legislation.

This is particularly true if you’re saving for retirement. For example, if you want to invest in cryptocurrency but aren’t sure if a bitcoin retirement account is the best option, you might buy BTC straight on a cryptocurrency exchange.

In addition, the number of crypto ETFs in the United States is increasing (as well as international crypto ETFs). Other funds invest in firms that are only tangentially tied to cryptocurrency or blockchain technology. These initiatives could be a viable option for investors who aren’t ready to acquire crypto directly but want to get a wide view of the sector as a whole.