Can You Invest In NFTs With A Solo 401k?

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NFTs have drawn attention as speculative investments, digital art forms, and blockchain-based innovations. But can they belong in a retirement account like a Solo 401k? That’s a question more self-employed investors are starting to ask.

If you run your own business and want more flexibility over your retirement portfolio, a Solo 401k could give you direct control over what you invest in. But that doesn’t mean everything is allowed.

The IRS has begun weighing in on how NFTs should be treated under tax law. And depending on what an NFT represents, some could be completely off-limits for retirement accounts.

This article breaks down how the IRS classifies NFTs, what types might be allowed, and what could trigger unexpected taxes or penalties. If you’re curious about adding NFTs to your Solo 401k, here’s what you need to know first.

📌 Also read: What Can I Invest In Through A Solo 401k?

What Are NFTs and Why Are They Treated Differently?

NFT stands for non-fungible token — a type of digital proof of ownership recorded on a blockchain. Most NFTs represent digital assets like art, music, video clips, or photos. Others may include things like event tickets or virtual game items. Among these, digital art remains the most common use case.

Examples of a few well-known NFT sales:

NFTs don’t have fixed pricing. Like art and collectibles, their value is based on what a buyer is willing to pay, often influenced by rarity or cultural relevance.

In 2021, IRS Commissioner Charles Rettig told the Senate Finance Committee that “NFTs are essentially collectibles in the crypto world.” While not a formal ruling, this reflects how the IRS may continue to treat NFTs under tax law.

📝 Note: Although NFTs could eventually offer more real-world utility, most currently fall into the category of digital collectibles — an important distinction when it comes to retirement account rules.

📌 Also read: How to Invest in Startups With Your Solo 401k

How Taxes Work in a Solo 401k When Investing in Digital Assets

A Solo 401k offers important tax advantages, whether you’re using the traditional or Roth version. In a traditional Solo 401k, earnings grow tax-deferred. You don’t pay taxes on investment gains until you take withdrawals, typically during retirement.

In a Roth Solo 401k, qualified distributions are tax-free. That means if you meet the 5-year holding period and reach age 59½, you won’t owe taxes on withdrawals, including any investment gains.

Any sales or trades made within the Solo 401k account (e.g., stocks, private funds, or digital assets) are not taxed at the time of sale. These transactions happen inside a tax-advantaged wrapper.

Because NFTs, like cryptocurrencies, may experience sharp price changes, some investors are drawn to using Solo 401k funds to capture that potential growth without triggering immediate taxes.

Can You Buy NFTs With a Solo 401k?

As of 2025, the IRS classifies NFTs as digital assets, similar to virtual currencies. But instead of issuing a blanket ruling, the IRS uses a look-through approach under Notice 2023‑27.

That means:

Collectibles Are Prohibited in a Solo 401k

Under IRC Section 408(m), collectibles are not allowed in any Solo 401k. This includes:

❌ Artwork (including digital art)

❌ Antiques and rugs

❌ Rare wine or stamps

❌ Gems and precious metals (outside IRS-approved bullion)

❌ Coins for personal use

❌ Memorabilia and similar assets

If your Solo 401k buys an NFT tied to any of the above, it’s treated as a distribution. That means:

✏️ Hypothetical Example: If your Solo 401k buys a $1,000 digital art NFT and it’s deemed a collectible, the IRS would treat that $1,000 as an early withdrawal. You’d owe taxes and penalties on the full amount.

So When Is an NFT Allowed?

You may be able to invest in an NFT through a Solo 401k if all the following conditions are met:

✅ The NFT does not represent a collectible (e.g., it’s not tied to digital art, rare media, or memorabilia).

✅ It reflects a different type of asset, such as:

✅ Your Solo 401k is self-directed and allows for alternative investments.

✅ You apply the IRS’s look-through analysis to determine what the NFT actually represents

📝 Note: Each NFT must be reviewed individually to confirm it complies with IRS rules.

Not All Solo 401k Plans Allow Alternative Assets

Many mainstream Solo 401k providers limit you to mutual funds or publicly traded securities. To invest in NFTs, you’ll need:

📌 Some providers, including Carry, can accommodate this structure, but not all do. Always confirm your provider’s restrictions before attempting NFT purchases.

Final Regulations Still Pending

The IRS has not issued permanent rules for NFTs in Solo 401k accounts. The guidance under Notice 2023‑27 is a temporary framework.

To stay compliant:

📌 Also read: Comparing the Best Solo 401k Plan Providers for 2025

Final Thoughts on Investing in NFTs With a Solo 401k

NFTs are a fast-evolving asset class, and their tax treatment is still developing. The IRS currently classifies them as digital assets, but whether they’re allowed in a Solo 401k depends on what the NFT represents. If it’s tied to a collectible, it may be treated as a prohibited investment and could trigger taxes and penalties.

Before using your Solo 401k to invest in NFTs, it’s important to apply the IRS’s look-through analysis, review your plan’s investment rules, and document each purchase carefully. Not all Solo 401k providers allow alternative assets like NFTs, so it’s worth confirming your provider’s capabilities in advance.

If you’re exploring ways to diversify your retirement portfolio with digital assets, consider speaking with a tax advisor familiar with Solo 401k compliance and digital asset regulations.

📌 Want to know more about Solo 401k and how self-directed plans work? Check out these articles:

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Disclaimer:

The Carry Learning Center is operated by The Vibes Company Inc. (“Vibes”) and contains generalized educational content about personal finance topics. While Vibes provides educational content and technology services, all investment advisory services discussed on this website are provided exclusively through its wholly-owned subsidiary, Carry Advisors LLC (“Carry Advisors”), an SEC registered investment adviser. The information contained on the Carry Learning Center should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment, accounting, tax or legal strategy. Vibes is not providing tax, legal, accounting, or investment advice. You should consult with qualified tax, legal, accounting, and investment professionals regarding your specific situation.

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