How to Invest Your 401k into Cryptocurrency / Bitcoin

Last Updated on 2nd June 2022 by Jeffrey Camerda

How to Invest 401k in Cryptocurrency or Bitcoin

How do you use your 401k to invest in cryptocurrency or bitcoin? The first thing you need to do is convert your 401k into a Self-Directed IRA (Individual Retirement Account). A 401k retirement account cannot be directly invested in cryptocurrency but a Self-Directed IRA can. Once you have switched over to the self-directed IRA you can go ahead and invest your savings in bitcoin or cryptocurrency.

mobile phone on a deskHow to Switch a 401k to a Self Directed IRA

When you convert your 401k into an SD-IRA (self-directed IRA) you unlock your retirement fund and gain complete control of how the account is managed and invested. Rolling over your 401k to an IRA is actually a pretty simple process. The first thing you need to do is open a new IRA account. When this is done, rollover your 401k funds into the new account and you’re all set.
For cryptocurrency options on your new IRA, you need to make sure you open a ‘Self Directed’ IRA account. This is the only IRA account that allows for investing in crypto technologies. The term ‘self-directed’ means you have full control over which investments are made and how much of your funds you wish to invest in any given asset. So, first things first, you need to identify a custodian to manage your account and then begin the process of opening a new self-directed IRA. See below for the steps involved in opening a new IRA account.

investing on smart phoneHow to Open an IRA

A self-directed IRA gives you full control over how the account is managed and where your investments are made. They should be set up with an approved custodian who will manage the operation and all the legal and financial technicalities of the account.  The rollover of funds from an existing account into your new IRA can take time. So, if you want to get your 401k invested in bitcoin or cryptocurrency it is important to get things started sooner rather than later. For help choosing the right custodian for you, read our guide – Best Crypto Currency IRA Companies 2020, click here.

IRAs can seem a little confusing at first. There can be a lot of jargon and industry speak – but the process in getting one set up is actually pretty simple. The steps involved are straight forward. First, identify a custodian you trust and are happy with. There are a lot of options out there so, take some time and do a little research. It’s best to invest a little time now and make a choice that’s a good fit for you. Your account trustee will manage all the legalities and technicalities of holding the account for you.

Once you have chosen your trustee/custodian all you need to do is fill out an application form and they will take it from there. You will need to present some form of valid ID to confirm your identity (usually a drivers license) and of course, pay an account set-up fee. Some trustees may require additional documentation but these are the basics you’ll need to get started. Once you have the account set up, you need to rollover your 401k funds into it. This process has been discussed above.

When the funds are in and everything is approved you are ready to begin investing in your chosen crypto technologies.


green shoot growing like an investmentRolling Over 401k Funds to IRA:

Once your IRA is up and running the transfer of funds from your 401k is another straight forward process. Your account trustee can do most of the work, but you may need to make a phone call to your previous employer to verify that the custodian is acting on your behalf. If your broker calls up and asks for the funds to be transferred in your name, your previous employer may understandably ask that you step in and contact them directly to make sure the whole thing is legit.

You may be one of those lucky individuals that have access to an online portal that manages your old 401k. If this is the case, go online and check to see if there is an option to withdraw or transfer funds. If this facility already exists it can speed the whole thing up and remove some of the red tape. If you can – select to ‘Roll Over’ your funds into a new account. Then just enter the details of your new IRA account and you’re good to go. The funds will be transferred and you’re now the owner of a Self Directed IRA.


Tax Implications of 401k Roll Over:

Be careful if your old employer insists on sending you a check. There is a very serious potential pitfall here. And the best way to avoid it is to ask them to send it directly to your account custodian. Do not have the check sent directly to you. This can raise a whole range of unwanted taxation problems. Basically, if the check is sent directly to you – the IRS will view this as taxable income and you could be charged a lot of tax. It has to go straight to your account custodian. Technically, there is a 60-day window for you to transfer this check to your trustee before the IRS are on your back. But why take this chance. Things happen and unexpected things happen in life. Just have them send it directly to your account holder and never receive it in person in the first place.


investing computer screenHow to Purchase Cryptocurrency Using an IRA

To begin the process of investing in cryptocurrency you need to first identify the specific crypto option you want to invest in. There are a lot of cryptos there – with bitcoin being the most popular. Other cryptocurrencies include Ox, Algorand, Augur, Basic Attention Token, BCAP, Bitcoin Cash, Bitcoin Gold, Bitcoin SV, Caspian, ChainLink, Civic, Dai, Decentraland, EOS, Ethereum, Ethereum Classic, FOAM, Golem, Kin, Kyber Network, Litecoin, Loom Network, Maker, Numeraire, OmiseGO, Orbs, Props Token, Stellar, Tezos, USD Coin, XRP, XYO, Zcash and Zilliqa.

Once you have identified your preferred investment option or options you need to instruct your trustee to make a purchase. This is done by filling out a Direction of Investment form. Your IRA trustee will then send funds from your IRA as per your instructions to make the cryptocurrency purchase. Your account trustee will hold all the transactional deeds, operating agreements and notes for safekeeping.


Advantages of Investing 401k in Cryptocurrency

The cryptocurrency market is in its infancy and can be unpredictable. Individual coins can be volatile and sharp price rises and falls can happen quickly. Therefore it is important that you choose wisely when deciding which currency you wish to invest in. Spend some time looking into the market and the different technologies out there and invest in one you believe in. Identify crypto-projects that have solutions to real-world problems.

There are a wide range of cryptocurrencies out there, but the most established and well known is bitcoin. Let’s take a look at some of the advantages this new technology offers and the reason it is such a popular investment option today.


bitcoin ira planSome Key Advantages of Bitcoin Technology:

Global Reach: bitcoin allows the user to send or receive any amount of money, anywhere in the world and at any time. There are no restrictions in terms of the size of the fund or on which days or at what time the transaction can take place. The constraints that are inherent in the traditional banking system such as time, geographical reach and upper transfer limits are all removed. Bitcoin imparts incredible freedom and global reach onto the user that is unmatched by any other banking or financial service.

Security: Both the user and the merchant are protected from fraudulent activity when they choose bitcoin for their transaction. On the merchant’s side, transactions are secure and irreversible. This means they are protected from both fraudulent payments and from fraudulent chargebacks. This is a key advantage over the traditional credit card payment method. Also, from the user’s side of the transaction, they benefit from having full control over the movement of funds. The user determines how much bitcoin is to be paid and ‘push’ this through to the merchant.

This is different from the conventional credit card system used today whereby the customer discloses all their personal info and card details and then trusts that the merchant will take the agreed amount of money. In addition to this key benefit – no personal information is disclosed when making a payment using bitcoin. This means that the user is protected from losing sensitive information and from identity theft.

Extremely Low Transaction Fees: bitcoin transfers are free from intermediaries such as banks or government bodies and are therefore able to operate with much lower transactional fees. Transfer fees for bitcoin are extremely low. This is a very attractive feature of the technology to the end-user. Typically the fee for a bitcoin transaction is 0.0005 of one bitcoin. That works out at just 0.05% of a single bitcoin. Much cheaper than trying to wire money through the banking system.

For more reading on using 401k funds to purchase Bitcoin see – Regal Assets 401k to Cryptocurrency IRA reviewed.

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Certified Financial Planner at Camarda Wealth Advisory Group | 800-262-1083 | Website

Dr. Jeffery Camerda, PhD, is a financial planner who specializes in wealth management and retirement planning.

With a PhD in Economics and Financial Planning, Jeffery represents the highest level of financial planning expertise and achievement in the USA

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Jeffrey Camarda, PhD, CFA, EA is also the founder of the Family Wealth Education Institute, is a member of the Financial Planning Association and serves as the Chairman of Camarda Wealth Advisory Group

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