Investing in Crypto Using Your Solo 401k

Thinking about adding crypto to your retirement portfolio?

If you’re self-employed or run a small business, a Solo 401k could offer a way to invest in digital assets while potentially gaining tax benefits. This type of retirement plan is known for its high contribution limits, flexible investment options, and checkbook control features, making it appealing to those who want more control over where their retirement dollars go.

Some investors explore crypto inside a Solo 401k to diversify their portfolios or pursue potential long-term growth. But there are also risks to understand and rules to follow. Crypto is treated as property under IRS rules, which means tax reporting, prohibited transaction rules, and security responsibilities are all critical to know. 

In this guide, we’ll break down how crypto investing works inside a Solo 401k, what to watch out for, and how to protect your account. You’ll learn about eligibility, setup, custody options, and key compliance tips so you can make informed decisions that align with your goals.

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

What Is a Solo 401k?

A Solo 401k is a type of self-directed retirement plan designed for self-employed individuals and small business owners with no full-time employees. What makes it unique is that it gives you direct control over your investments, including digital assets like Bitcoin and Ethereum, without needing a third-party custodian to hold your private keys.

How Does a Solo 401k Work?

To get started, you’ll need to set up a Solo 401k plan using an IRS-compliant document, typically through a provider that supports alternative assets. Once your plan is in place, you become the plan’s trustee, which means you manage the assets on behalf of the plan.

As trustee, you’ll open a dedicated checking account in the name of your Solo 401k. You can fund this account via rollovers from other retirement accounts or by making new contributions. After funding, you may use that money to buy crypto through platforms that accept direct payments, such as centralized exchanges, decentralized wallets, or over-the-counter (OTC) providers.

Under IRS rules, digital currencies held inside a Solo 401k are treated as property, not currency. This means any potential gains from trading, staking, or other income-generating activity are tax-deferred (or tax-free if held in a Roth Solo 401k), as long as the funds stay in the plan.

It’s important to note that even though you manage the assets, you do not personally own them — the Solo 401k does. This distinction helps the account stay compliant with IRS regulations and avoids issues related to personal possession, such as those raised in the McNulty IRA ruling.

What Are the Main Benefits of a Solo 401k?

✅ Potential Tax Savings — Earnings from crypto investing inside a Solo 401k can grow tax-deferred, and Roth Solo 401k distributions are generally tax-free if IRS rules are followed. Over time, this structure could offer greater compounding benefits than taxable accounts.

✅ Direct Access and Control — With checkbook control, you don’t need approval from a custodian or brokerage. You can move quickly, buy from your preferred exchange, transfer assets to cold storage, or explore decentralized platforms—as long as everything stays within IRS guidelines.

✅ Higher Contribution Limits — For 2025, you may contribute up to $23,500 in employee deferrals, plus up to 25% of your net self-employment income, for a combined total of up to $70,000 (or $77,500 if age 50 or older). These limits are much higher than what’s allowed in IRAs.

✅ More Diversified Portfolios — Adding crypto could help reduce reliance on traditional markets. Because crypto often moves differently than stocks or bonds, it may help balance long-term volatility and support broader diversification goals.

📝 Notes:

How to Invest in Crypto Through a Solo 401k

If you already have a self-directed Solo 401k that allows cryptocurrency investments, the next step is to get funds into the plan and make your first crypto purchase. Here’s how to do it properly.

Step 1: Fund Your Solo 401k for Crypto Investing

To buy crypto, you’ll need to deposit cash into your Solo 401k’s dedicated bank or brokerage account. This is the account you manage as trustee of your plan.

There are two main funding options:

✅ Make New Contributions

For 2025, you can contribute up to $23,500 of your self-employment income. If you’re 50 or older, you can add a $7,500 catch-up contribution or up to $11,250 if you’re between ages 60 to 63 under SECURE 2.0.

✅ Do a Rollover from Another Plan

You can roll over unlimited funds from an IRA, 401k, or other eligible retirement account into your Solo 401k. There’s no annual limit on rollovers.

📝 Important Note: Use a trustee-to-trustee transfer to avoid the 60-day rollover rule and reduce IRS scrutiny. Just confirm your Solo 401k plan documents allow for incoming rollovers.

Step 2. Choose a Crypto Platform and Place Your Order

Once your plan is funded, you’re ready to invest.

✅ Select a Crypto Venue

Choose an exchange, OTC desk, or DeFi platform that allows ACH or wire transfers from your Solo 401k’s account. Make sure the provider:

✅ Place the Order as Trustee

Log in or create an account under your Solo 401k’s name, not your personal name. Then:

✅ Keep Documentation for Compliance

Save a record of:

These records help demonstrate that the transaction was performed within the plan and support IRS compliance.

Step 3. Move the Crypto Into a Wallet Owned by Your Plan

✅ Transfer to a Plan-Titled Wallet

Immediately send the crypto to a wallet held in the name of your Solo 401k. As the trustee, you’ll have direct check-writing authority, which means you can control trades and wallet transfers yourself — no third-party custodian is needed.

📝 Note: This setup lets you manage your wallet, hold your own private keys, and avoid additional custody fees. Cold storage (offline wallets) is often recommended for added security.

✅ Track Everything Separately

Keep records of:

All gains stay tax-deferred or tax-free if you’re using a Roth Solo 401k.

Tax Rules, Risks, and Security Tips

How Does the IRS Treat Crypto in a 401k?

The IRS considers crypto as property, not currency. This includes Bitcoin, Ethereum, stablecoins, and even NFTs. According to Notice 2014-21, this means:

✅ Any gains or income earned inside the plan such as profits from trading, staking rewards, or airdrops aren’t taxed right away. Taxes only apply when you take money out of the plan.

✅ You don’t need to report trades or gains made inside the plan on your tax return. Only distributions taken outside the plan are reported on your Form 1040.

✅ Tax only applies when funds are distributed from the plan.

Withdrawals from a traditional Solo 401k are taxed as ordinary income. Qualified distributions from a Roth Solo 401k are tax-free.

What Transactions Are Off-Limits?

The IRS bans certain actions between your Solo 401k and people or entities closely related to you. These are called prohibited transactions. Examples include:

❌ Selling crypto you personally hold to your 401k
❌ Using plan crypto as collateral for a personal loan
❌ Letting family members use or benefit from plan-held assets
❌ Running your business with crypto held by your 401k

📝 Note: Violating these rules could disqualify your plan and trigger immediate taxes and penalties.

Are There Contribution Limits, Fees, or Loan Options?

Contribution Limits (2025)

You can contribute up to $23,500 in employee deferrals. If you’re 50 or older, you can add $7,500 more as a catch-up. Employer contributions can go up to 25% of your net self-employment income. The total across all contributions can’t exceed $70,000 (or $77,500 with catch-up).

Fees to Expect

Plan administration typically costs $250 to $600 per year. Exchanges or crypto platforms may charge trading fees, usually 0.1% to 0.5%. Hardware wallets can cost $50 to $200 upfront.

Loan Rules (If Allowed By Your Plan)

How Can You Keep Crypto Safe in a Solo 401k?

✅ Use Cold Storage

Store crypto in a hardware wallet (e.g., Ledger or Trezor) that stays offline. This protects against exchange hacks and online threats.

✅ Consider Custodial Services or Multi-Sig Setups

Some platforms offer secure, insured storage with extra safeguards like multiple approval layers for transactions.

✅ Limit Exposure

Crypto is volatile. Consider capping your plan’s crypto allocation to 5–10% of total retirement assets. Do thorough research before buying new tokens. Review developer activity, audits, and reputation. Stay updated on device security and avoid phishing scams that target wallet credentials.

✅ Best Practices for Key Management

📝 Important Note: Crypto in a Solo 401k offers exciting opportunities—but also risks. Prices can swing sharply and regulations may evolve. Security lapses like losing private keys or falling for scams can result in permanent loss. Always follow IRS rules, keep detailed records, and consult a qualified tax or legal advisor before making complex trades or transactions.

Final Thoughts on Using a Solo 401k to Invest in Crypto

Investing in crypto through a Solo 401k gives self-employed individuals a way to grow retirement savings with potential tax advantages while gaining exposure to digital assets. It’s a unique strategy, but it comes with added responsibilities such as compliance and secure handling. 

Make sure your plan supports crypto, follow IRS rules carefully, and prioritize secure storage. Start with a small test amount you’re comfortable managing, and track all transactions clearly.

If you’re serious about this path, consider working with a Solo 401k provider that supports crypto directly. And when in doubt, speak with a tax or retirement expert to avoid costly mistakes.

📌 Want to know more about Solo 401k rules and investment opportunities? Check out our articles for more insights:

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