Selling Crypto from regular account to put into solo 401K account

[Gene M.]

I need to sell a block of crypto, then buy the same crypto to invest it into My solo 401K account.

Do I have to sell it, then take the funds and put them into my solo 401K bank account, then transfer the money into the coin exchange to buy them?

Is there an easier way with out so many steps? I only plan to withdraw the original investment amount so I don’t have to pay any capital gains taxes.

Thanks for your answers, Gene

Gene M.

Contact

[Mark Nolan]

Such transaction will result in a solo 401k prohibited transaction as you cannot sell crypto that you personally or your business owns to your own solo 401k, whether done directly or indirectly.

Mark Nolan

Compliance Officer

Contact

1-800-489-7571 www.mysolo401k.net

[Gene M.]

Mark,

Thanks for your answer, but I plan to sell the cryptos, convert into cash, then as a separate transaction tkae the cash, deposit it into my solo 401k trust account and buy new cryptos through my solo 401k coin account. How is that illegal? If I sold coins or real estate for cash, are you saying I can’t reinvest into my 401k any of those proceeds either?

Gene M.

Contact

[Mark Nolan]

Thank you for clarifying. Unfortunately, the retirement account rules don’t allow for the deposit of proceeds from the sale of a peroneal asset such as cryptocurrency into a retirement account such as a solo 401k or an IRA, for example.

In order to get funds into a solo 401k plan, the following applies:

By making an annual solo 401k contribution based on earned income from self-employment income.

By transferring IRAs and former employer plans such as 401k plans, 403bs, TSPs, DBPs, PSPs, 457bs etc.

By returning gains to the plan earned by an investment owned by the solo 401k plan.

Mark Nolan

Compliance Officer

Contact

1-800-489-7571 www.mysolo401k.net

[Gene M.]

Mark,

I understand what you are saying. I need to make a 26K contribution for 2020 to my solo 401K. this is based on my income. Since I had invested some of my earning this year into crypto and metals why can’t I take some of those profits and invest it into my 401k?

Gene M.

Contact

[Mark Nolan]

What tax return do you file for your self-employed business?

Mark Nolan

Compliance Officer

Contact

1-800-489-7571 www.mysolo401k.net

[Gene M.]

I file a joint return with my wife with 1099 income for the company (Solo LLC, S-corp, no employees) on a 1040 form. My wife works as a part time 1099 contractor for my business.

Gene M.

Contact

[Mark Nolan]

If your LLC is taxed as an s-Corp, then contributions to the solo 401k plan will be based on W-2 wages from the LLC. See the following:

Slides: S-corporations, C-corporations, LLC taxed as S-corp./C-corp., W2
Video: https://youtu.be/LZHzeb-WhME
https://www.mysolo401k.net/corporation-calculating-solo-401k-contributions-corporation/

For example, for 2021 if you are age 50 or older and report at least $26,000 of W-2 wages in box 1 from your self-employed LLC, you could contribute the full $26,000 as an annual solo 401k contribution. In sum, you can only contribute to the solo 401k plan based on earned income from self-employment income NOT from passive or capital gains as that type of income is not considered earned income from self-employment.

Mark Nolan

Compliance Officer

Contact

1-800-489-7571 www.mysolo401k.net