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5 Things You should Know about Investing in Bitcoin for Retirement With a Solo 401(k)


Capital preservation is important and you are not likely to have any money left to spend during your retirement if don’t understand the principles of capital preservation. Nonetheless, capital gains ensures that your wealth keeps up with inflation and uncertain economic trends; hence, the goal of the astute investor should not be capital preservation but capital appreciation. Bitcoin is one of the few assets that promises an exponential ROI on a 401(K) plan in sharp contrast to the mutual funds that IRA managers tend to peddle.

Bitcoin is a relatively new asset and naysayers are quick to claim that it has not been time-tested and proven. However, it is important to remind you that in November 2010, the number of Bitcoin mined was about $1,000,000 and $1 was equal to 2BTC. As at February 2011, Bitcoin was on par with the USD and now 1BTC trades around $600. Hence, investors can only expect Bitcoin’s value to increase with time.

If you have a boring 401(K) plan or another IRA account, this article provides insight into five things you need to understand about investing in Bitcoin for retirement.

1. Legality

It is perfectly legal for you to use Bitcoin to fund your 401k retirement plan or to convert the funds in your 401k plan to Bitcoin. One of the many factors that attest to the legality of Bitcoin for 401k plans is that the IRS has determined that Bitcoin is a virtual currency that has “an equivalent value in real currency”.

In fact, the IRS explicitly refers to Bitcoin in its IRS Virtual Currency Guidance: Notice 2014-21. The IRS notes that “Bitcoin can be digitally traded between users and can be purchased for, or exchanged into U.S. dollars, Euros, and other real or virtual currencies”. In essence, the IRS is claiming that the direct convertibility of Bitcoin for real currencies such as USD and Euros qualifies it as a legal tender. In essence, you can choose to fortify your 401K plan with Bitcoin without

2. Duration of investment

The kinds of assets that you’ll naturally want to keep in your IRA are long-term investments that will have enough time to mature and yield full returns. However, many of those long-term assets tend to be conservative investments with low rewards; hence, you are not likely to get to your financial goals in good time. However, having Bitcoin in an IRA plan gives you an opportunity to score the big gains that accompany speculative investments.

Nonetheless, the question” how long should I keep Bitcoin in my IRA?” cannot be answered at the surface level because there’s no one size fits all answer.  For one, people have different risk levels and people do not have the same number of years ahead until retirement. Hence, the duration for keeping Bitcoin in your retirement account can only be made in consultation with a professional financial adviser who will examine your unique position.

3. Cashing out Bitcoin from your retirement account

Irrespective of how much money you have in your retirement account or how much returns you recorded, you’ll eventually need to cash out or liquidate your Bitcoin IRA. Cashing out or liquidating a Bitcoin IRA account is quite easy. You can choose to liquidate your Bitcoin to cash directly from a Bitcoin exchange.

More so, you can choose to take “physical” possession of the Bitcoin and spend it on goods and services in store where Bitcoin is accepted. Microsoft collects Bitcoin payments for apps, games, hardware and software. Dell accepts Bitcoin and you’ll have a 10% discount when you pay with Bitcoin. Newegg, Target, Amazon, Tesla, Expedia, PayPal, and CVS Pharmacy are just few out of the hundred businesses that accept Bitcoin payments.

4. A word or two on taxes

Death and taxes are about two of the most certain things in life and you are not likely to escape either of the two. Hence, investors often try to minimize the taxes they pay on their investments decisions or on capital gains they make when such investments are profitable. Interestingly, you won’t incur any taxes if you rollover your annuity, pension plan, 457(b), 403(b) or 401(K) into Bitcoin. In fact, rolling over most retirement accounts qualifies for a tax-free Bitcoin IRA rollover.

5. Eligibility

You can rollover your 401k into Bitcoin if you are willing to through the quick process of applying for a self-directed IRA. Interestingly, if you have a ROTH IRA, Traditional IRA SIMPLE or SEP account, you can choose to set up a Bitcoin Investment Trust. More so, people with 401K, 403B, and Thrift Savings Plans (TSP) are also can also set up a Bitcoin IRA with their original 401K plans. Some specific type of pension plans and some select annuities are also eligible for a Bitcoin 401K rollover.

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