Many investors are now wanting to put Bitcoin in their 401k but for years, virtual currencies were not available inside of investment accounts. With the rise of institution-backed investment products like crypto trusts, funds, and possibly ETFs, it’s now possible to make crypto a part of your longer-term retirement plan. It’s never been a better time to start analyzing the asset class and see if a Bitcoin 401k is for you.
What is a 401k?
A 401k is an employer-sponsored individual retirement account. They are typically available to full-time employees hired on a W2 basis and are ubiquitous among larger companies, but are not mandatory for employers to provide. A 401(k) invests a predetermined percentage of each paycheck into the 401(k). The main advantage of a 401(k) is that employers often offer a contribution “match,” using their own money to invest in your 401(k) up to a certain percentage (e.g. 401k with 4% match).
Why is it a good tax shelter?
401k’s are good tax shelters because they allow you to reduce your taxable income by the amount of your contributions. Additionally, your investments grow tax-deferred, compounding interest and earnings over time that are not tax-liable each year. However, because most 401k’s are traditional as opposed to Roth accounts, they are not permanent tax shelters and you will need to pay taxes on your investments eventually, typically when you begin receiving distributions during retirement.
What is an IRA?
An IRA is an Independent Retirement Account. Unlike a 401(k), IRAs are independently funded and managed solely by the account owner but are ineligible to receive employer contributions.
How does rolling over a 401(k) into an IRA work?
If you change a job or want to manage your own retirement account, such as adding crypto to your retirement portfolio, you can choose to roll over a 401(k) into an IRA new or old. However, if you have a traditional 401(k), you can only roll that over into a traditional IRA, and vice versa with a Roth 401(k); you can’t switch account types. This is because your invested money has either already been taxed (or not). Many investing platforms and brokerages allow customers to import or “rollover” an existing account with another company into their platform.
After setting up the new (or existing) IRA, you may have to contact your 401(k) administrator to initiate a direct rollover. Your 401(k) institution may send a paper check to the institution where you’re opening a new IRA, rolling over the money digitally via wire transfer, or send you a paper check. Once the rollover has been initiated, if the 401(k) funds are sent to you, you will have 60 days from receipt of your 401(k) distribution to deposit it into your IRA, or else it’ll be tax-liable.
What is a Crypto IRA?
A Crypto IRA (sometimes known as Bitcoin IRAs) is an Independent Retirement Account as described above that primarily invests in cryptocurrency instead of traditional sectors such as equity-bond mutual funds. While investors are limited to traditional investment products tied to cryptocurrencies such as single-asset trusts or digital asset basket funds, there is a handful already available to investors with likely more on the way. This allows average investors the opportunity to make long-term investments in cryptocurrencies through safe, accredited institutions that securely custody investors’ reserve-backed funds by adding them to their tax-advantaged retirement accounts.
Gone are the days of the wild west when cryptocurrency investors had to wire funds to non accredited entities overseas to hopefully buy Bitcoin and not have their funds frozen, lost, or stolen. In a span of only a few years, the nascent crypto space is now not only tradable on major investing platforms but also includable in traditional retirement accounts.
As crypto continues to mature and gain mainstream adoption by institutional investors, investors large and small gain new opportunities to invest in this new and burgeoning space making huge waves in finance, banking, and investing. In addition to greater accessibility and institutional-grade custody, investors are now able to legally and compliantly include crypto in tax-advantaged accounts, providing validation and outsized gains with less or no tax liability.
Digital Currency and Digital Wallets
Luckily for investors, when investing in Bitcoin at iTrustCapital they don’t need to worry about private keys. This means your investing experience is very similar to traditional assets and regular leading retirement solutions, you simply have an email and a password. This is because iTrustCapital utilizes military grade wallet infrastructure that not only provides ease of use, but elite security. It doesn’t matter if you have a Traditional IRA or a Roth IRA, we take care of the security!
Interested in learning more? Read our Frequently Asked Questions.