One of the most common questions we hear is, “Can I move my 401k into bitcoin?” If you have been thinking this also, you’re not alone. In fact, millions of people are taking advantage of IRS rules that allow almost anyone to set up and fund a self-directed IRA (SDIRA) that holds bitcoin or other kinds of non-traditional assets.
While it can be challenging to do all the paperwork and exchange on your own, when you work with a company that knows how to set up the new IRA account for bitcoin and move your 401k assets into it, the entire process can take just about an hour.
There are actually three things happening at once. First, you’re converting your 401k into a self-directed IRA. These special IRAs can hold bitcoin, so you must set one up to put any kind of cryptocurrency into a retirement fund.
Second, you will need to purchase bitcoin with whatever amount of capital you’re rolling over from the original 401k account. Finally, you’ll select an official “custodian,” which is the company that oversees the account and keeps all the records.
Here’s more about the details of each of those essential steps.
How To Transfer 401k to Bitcoin
For most investors, the single most important piece of the “401k-to-Bitcoin” puzzle is choosing a competent, honest custodian. This is the company that will walk you through the process of creating a self-directed IRA, purchasing the cryptocurrency that will go into the account, and keeping all the records for tax and other purposes.
Whenever you choose a custodian, there are a few essential steps to go through. Likewise, remember to give time and thought to the amount of money you want to put into your new IRA. Some people transfer their entire account, while others only use a portion of the funds in their 401k.
As is valid with all kinds of financial and retirement accounts, legal forms are filled out. Fortunately, they’re relatively simple, and your chosen custodian can fill them out for you by speaking with you over the phone for a few minutes. Of course, you can always do the paperwork by yourself, but having the assistance of an experienced custodian makes the process go by faster.
Here’s what you must know before moving ahead.
One: Choose a Custodian:
- When people decide to buy houses, cars, boats, or anything of value, they’re cautious about who they buy from. This is the same situation with setting up an IRA. Technically, you’re not “buying” anything, but you are choosing a company that will act as the custodian of your account.
- So, do your due diligence and make a list of qualifications the company should have. Everybody has different needs and preferences, but be sure to include characteristics on your list like, expertise, reviews, the number of cryptocurrencies supported, objective ratings, fees, and any areas in which the company specializes.
- This can take a bit of time, but every minute you spend doing some easy online research is worth its weight in gold or in bitcoin, whichever you prefer. Seriously, remember that there are lots of companies out there, but only a handful possess the experience, qualifications, and integrity to serve your needs.
- When you narrow down your candidate list of companies to two or three possibilities, call and ask specifics about what their fees are, how they store the bitcoin (so-called “cold” wallets are the most secure), how long they’ve been in business, and whether they have any current clients you can speak with.
Two: Decide On the Amount of Funds to Convert:
- This step is more critical than most people think. Keep in mind that you don’t have to convert all of your 401k funds into bitcoin; only as much money as you feel is the right amount. And, note that it is perfectly legal to have as many retirement accounts as you wish, even though you’re still limited by how much you can contribute, in total, each year.
- Think long and hard about how much of your 401k you want to convert to bitcoin. Speak with a financial advisor if you have one, or do online research and see what typical amounts are. Many investors view bitcoin and gold as hedges against inflation, so they decide to convert 20, 30, 50 percent or more of their current account into bitcoin.
- While bitcoin is a volatile asset class, at least for now, the cryptocurrency has an unlimited upside. That, in fact, is the main reason people give for keeping at least a portion of their retirement money in the form of cryptocurrency, specifically bitcoin.
- Bitcoin (BTC) is the largest, oldest, and best-known of all the cryptos. Investors do put other alt-coins, like Ethereum, Litecoin, and Dogecoin, in their self-directed IRAs. Still, when you’re just starting with a crypto-based IRA, it’s wise to stick with Bitcoin and possibly branch out into other kinds of cryptocurrency later on.
- That’s the beauty of a SDIRA; you can change your mind anytime and add other assets to the account, including other forms of cryptocurrency, precious metals, stocks, and more.
Three: Complete Legally Required Paperwork:
- Rolling over a 401k into bitcoin, or to any kind of self-directed IRA is a pretty quick process once you select a custodian and decide how much to open the account with. Every custodian company is a little different, but no matter who you choose, be ready to fill out a brief application form, sign your name in a few places, and present an official ID document (most people use their driver’s license or passport), and that’s it.
- Unless some unusual circumstances or restrictions are surrounding the 401k you currently have, the entire paperwork portion of the process typically takes around 15 minutes. Some custodians will email you the forms if you want to fill them out yourself. But the easiest method is to work with a custodian representative who walks you through the documents and fills them out for you.
- Of course, after your account is set up and ready to go, you can contact the custodian any time and get a copy of your most recent statement, copies of the forms and paperwork you filled out, and pretty much whatever else you want regarding the IRA account.
In addition to those three main items, it’s wise to remember a few other minor points about converting a 401k to bitcoin. When you do the actual transfer of funds from the original account to the new one, in some cases, it might be necessary to take the amount you choose to move in the form of a cashier’s check.
Suppose that’s the case; no need to worry. You have a full 60 days to put that money into your new IRA before the IRS penalties and tax liabilities affect you. But, don’t forget! For whatever reason, if you let the 60 days elapse, you could be faced with a significant financial penalty and tax bill.
However, only in very rare cases will anyone be forced to take the money in the form of cash/check. The vast majority of people simply do what is called a “direct transfer,” a situation in which all the funds you designate go directly to the new bitcoin account without you having to touch them. That means you don’t have to be concerned about the 60-day rule or anything else.
And, just as you do with a traditional IRA or 401k, consider making regular monthly deposits into your new bitcoin self-directed IRA. Base the amount on what you can afford to put into the account at regular intervals. This saves you the hassle of waiting until the end of the year and feeling the need to place a large amount of capital into the IRA.
Putting It All Together
Converting a 401k to a bitcoin has never been easier. As long as you meet the minimum qualifications as a 401k holder, you can set up a self-directed IRA (SDIRA), purchase bitcoin with the money in the 401k, place the cryptocurrency into the new account, complete some brief legal paperwork with your new account custodian, and you’re done.
The main questions you need to answer before getting started are related to how much of your 401k you want to transfer to the new SDIRA and who will be your new custodian. Aside from those two points, everything else can be done in just a few hours, though you might have to wait one or two business days before the account is officially set up and functional.
Keep in mind that you can put almost any kind of cryptocurrency into a SDIRA, as well as physical assets like precious metals. However, because metals require a physical vault for storage, account holders need to select an IRS-approved vault and pay an annual storage fee. But in the case of an IRA, fees are minimal, and the setup is simple.
Final Verdict – Which Companies Is Best To Help Me?
When finding a company to help you through the process, you want to work with one who has great customer service, takes the time to educate you on your investment options, and has great reviews from customers online. BitIRA is one of the highest rated companies online with over 50+ 5 star reviews on Google, Consumer Affairs, and Better Business Bureau. They also have an A+ rating from BBB which shows a solid reputation and necessary accreditation.
You can click here to get a free BitIRA guide and learn more on your own. When you’re ready BitIRA will be with you every step of the way to ensure you get the best investment plan for your situation. Thanks for reading and good luck!