How To Rollover 401k to Crypto IRA

Are you one of the many people who want to roll over your traditional 401k account into a cryptocurrency-based IRA? The great news is that it's a relatively easy process because of new federal tax rules. Essentially, you move the funds directly from the 401k and place them into a special kind of IRA called a SDIRA (self-directed IRA). 

SDIRAs can legally hold cryptocurrency and many other kinds of non-traditional assets. If you attempt to set up a SDIRA on your own, the process can be kind of a hassle. But, if you find a licensed custodian who regularly works with IRA transfers, the whole transfer can happen in about an hour or less. 

In short, three actions take place at the same time. One, you transfer your 401k assets into a SDIRA. Only a self-directed IRA can hold cryptocurrency, aka "alt-coins." So, if you want to move those 401k assets into a SDIRA, you'll have to create a SDIRA first. 

Next, you need to use the funds in the 401k to buy the various cryptocurrencies to fund the SDIRA. This is a simple but vital step, which involves "converting" the assets in the 401k into alt-coin assets that will go directly into the self-directed IRA you have just created. 

Last and most important of all, it's up to you to choose an account custodian. This person (or organization) keeps the account records and sends regular reports to you. Of course, there are more details to the process than that, so here is a summary of what the entire rollover process is like. 

401k To Cryptocurrency: The Rollover

Rollovers have a bad reputation, but it's undeserved. In fact, in the entire process of converting your 401k into a crypto-based SDIRA, the most time-consuming chore is selecting a custodian.

The custodian is an institution that will be guiding you along the way, doing the paperwork for you, buying the actual cryptocurrency you'll place into the new SDIRA. Plus, the custodian maintains the tax records and sends you a monthly statement. 

That's why the choice of a custodian is so vital. Take time to find an honest one with a good reputation and lots of industry experience. In addition to choosing a custodian, your other major decision is answering the question, “How much of my 401k funds will I convert into the new self-directed, crypto-currency IRA?” You can transfer the entire amount or any portion of it.

The paperwork is the quickest and simplest part of it all. Most custodians will be happy to fill out everything for you and show you where to sign. That part of the process usually just takes a couple of minutes during a brief phone conversation. 

The following are the three steps for converting your 401k into a Crypto SDIRA:

Step One: Elect an Account Custodian

Take time to choose an account custodian that suits your needs in terms of customer service, attention to detail, and expertise. This is the due diligence step, and it's the most important of all. Check online reviews to get a feel for the reputation of the custodians you're considering. Find out how many different cryptocurrencies they work with. Get information about what their fee schedules are. 

Don't worry if this step seems to go slowly and takes up several hours of your time. Your financial security in the long term is at stake, so it's wise to put care and attention into the custodian selection process. The bottom line is that you're in search of a custodian with the requisite integrity, qualifications, and background with crypto SDIRAs that will make a difference. 

After you get the list down to just a few possible choices, get on the phone and speak with representatives. Ask direct questions about how they safely store cryptocurrency for their customers, what they charge for various services, how many years they have been handling crypto SDIRAs, and anything else that seems relevant to you.

Step Two: Decide How Much To Transfer To the Crypto IRA

Remember when you transfer 401k to cryptocurrency, you alone decide how much of the current 401k funds will go to the new alt-coin SDIRA. And, don't worry that if you transfer just a portion, you'll have two retirement accounts. In fact, there's no law against having as many as you wish. 

The legal restraint is on the amount you can contribute, all together, to all the accounts in a given year. 

This is a good time to consult with your tax or financial expert and arrive at a sensible amount for the transfer. For the vast majority of folks who are doing such a transfer, the goal is to fight against potential inflation. 

There's no hard-and-fast rule, but common transfer amounts, from 401k to crypto SDIRA, are anywhere between 10 and 60 percent of the total in the 401k. 

Cryptocurrency is a unique asset class because its growth potential is potentially very high. Of course, based on your own research, you will have to choose which cryptocurrencies to place into a SDIRA. A common technique for some investors is to distribute the total amount equally among the three, five, or ten largest alt-coins. 

Later on, you can change the mixture as you wish, add precious metals, corporate stocks, or whatever kinds of legally allowed assets you wish.

Step Three: Fill Out the Required Forms

Once your two basic questions (the custodian and the amount to transfer) are resolved, the rest of the 401k-to-crypto process is a breeze. Each custodian has their own way of doing things, but for the most part, all the reputable ones will ask you to complete a very short application, place your signature on a few lines, ask for a photo ID, and you're all done. 

Note that some people have 401k accounts that are restricted in various ways. If that's the case, make certain to speak with your employer's 401k account rep to find out how to deal with that situation. The majority of 401k's are quite easy to convert to other IRA accounts, whether a traditional one or a SDIRA. 

The paperwork normally takes just 20 minutes or less, and most custodians are happy to send you the documents via email if you want to fill in the blanks on your own. But, if you want to save time and the hassle of doing all the red tape yourself, choose a custodian who has reps that do the paperwork for you (except for the signature portion, of course). 

One of the custodian's jobs is to keep records. That means if you ever want a copy of the statement for a given month, all you have to do is contact the custodian's representative and ask. They'll also provide you with full copies of your original paperwork and any other account-related documents you need or want. 

If your 401k is set up in such a way that you are required to receive the payout in the form of a check, paid directly to you, don't worry that you'll owe taxes on the amount. According to federal law and IRS regulations, you have 60 days to decide where the money will go. So, all you must do is work with your custodian and let them know about the check.

Some folks decide to put some of the money into a traditional IRA and the rest into the new SDIRA in the form of cryptocurrency. The choice of what to do with the money is completely up to you, but note that it all needs to get parked into an IRS-approved retirement account, or you could be stuck paying the penalty and tax on some of it. 

Just get the funds into either your SDIRA or another retirement account, or a combination of the two, within 60 days. In fact, there are not many 401k plans anymore that will force you to take the funds in check form. Most plans currently in effect allow for instant transfer to another retirement account of your choosing. 

Consider depositing additional funds into your SDIRA on a regular basis. Of course, you'll need to abide by IRS rules on your maximum contribution amount each calendar year. For most people, that's $6,000. If you have reached your 50th birthday, then you can contribute up to $7,000 per year. 

The Whole Process In a Nutshell

Doing a 401k-to-SDIRA is actually a hassle-free process. If you meet the legal qualifications for making a conversion, all you have to do is create a SDIRA, buy crypto to put into it (using the funds in your 401k), put the alt-coin into your account, fill out a couple of short forms, and that's that.

You decide whether you want to transfer some or all of the money in your 401k. Another key decision that only you can make is who the custodian will be. Outside those key questions, the rest of the process just takes an hour or two. When you've taken care of all these details, it's possible you'll have to wait for a day or two (business days, that is) for the new SDIRA to be up and running and fully operational.

The whole setup process for transforming your 401k into a cryptocurrency-based SDIRA is short, simple, and straightforward. And, while there are custodial fees for account maintenance, they are modest. The two biggest variables are up to you, namely, choosing our own custodian and deciding how much of the 401k funds will be used to purchase cryptocurrency for the SDIRA.

Who Are The Best Companies To Help With The Rollover Process?

There are many companies out there but only a handful that are highly reviewed, have experience in crypto safety and security, and who have the overall reputation to make you feel comfortable investing with them. 

You can visit the full crypto IRA companies page to read more in-depth about these companies, what they specialize in, and who would be a good fit for you.

Here is a preview of the companies below. 

  • Solid consumer ratings
  • Provides in-depth education 
  • Up to $100 million insurance coverage
4.1 / 5.0 Stars
  • Dozens of 5 star reviews from customers
  • Top notch safety and security
  • Up to $100 million insurance coverage
3.9 / 5.0 Stars
  • Provides both crypto and precious metals
  • Solid education
  • Free crypto resources available