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Crypto Law/Level VII · Loopholes worth understanding/7.1 Legal planning/Lesson 6

Retirement accounts that hold crypto

The two ways crypto gets into US retirement accounts, the tax trade-off, and the contribution, collectible and possession rules that can turn the account into a taxable distribution.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Buy spot bitcoin exchange-traded products in a Roth IRA: growth is untaxed and qualified withdrawals, after age 59½ and a five-tax-year period under §408A(d)(2), are tax-free; 2026 contributions are cash only, $7,500, or $8,600 at 50+, with income limits.
  2. A traditional IRA defers tax on every trade, so lot choice and wash-sale questions vanish inside it; withdrawals are ordinary income, losses inside cannot offset gains outside, and early withdrawals generally add the §72(t) 10% additional tax.
  3. A self-directed IRA can hold coins directly, and ordinary digital assets are not collectibles under §408(m); the catch, per McNulty v. Commissioner (2021), is that the owner must never personally possess the assets or keys, and custodians charge fees.
  4. Check whether your workplace 401(k) offers crypto exposure: DOL Release 2025-01 rescinded the 2022 ‘extreme care’ warning, but each employer sets its own menu and the March 2026 safe-harbor rule is still only proposed.
  5. Coins you already own cannot go in: §408(a)(1) accepts cash only, so selling to fund an IRA is a taxable disposal; NFTs representing collectibles are treated as distributed (Notice 2023-27), and a §4975 prohibited transaction ends IRA status.

Materials26 U.S.C. §408 on law.cornell.edu, especially subsections (a)(1), (e)(2) and (m)McNulty v. Commissioner, 157 T.C. No. 10 (2021), on courtlistener.comExecutive Order 14330 (7 August 2025) and the Department of Labor’s proposed rule of 31 March 2026 on federalregister.govThe custody agreement of any self-directed IRA you have or are considering

Wonder

  1. Can I move coins I already own into an IRA?
  2. Can I keep my IRA’s crypto in my own wallet?
  3. Is crypto allowed in a 401(k) plan now?

Explore

  1. Crypto reaches US retirement accounts in two ways. The first is buying exchange-traded products through an ordinary IRA or brokerage window, which became widely possible after the SEC approved the listing of spot bitcoin exchange-traded products on 10 January 2024. The second is a self-directed IRA, where a specialised custodian holds coins directly. Inside a traditional IRA, trades are not taxed when made and withdrawals are generally ordinary income; qualified Roth withdrawals are tax-free. That means lot selection and wash-sale questions do not arise inside the account, but losses inside it cannot offset gains outside it, and long-term capital gain rates do not apply to traditional IRA withdrawals.
  2. Contributions have to be cash. Section 408(a)(1) says an IRA accepts no contribution unless it is in cash, apart from rollovers, so coins already owned cannot be moved in as a contribution; selling them to raise the cash is a taxable disposal (lesson 2.1.2). For 2026 the IRS sets the combined limit for traditional and Roth IRA contributions at $7,500, or $8,600 for people aged 50 or over, or taxable compensation if less. The shelter therefore applies only to growth after the cash goes in, which caps how much built-up gain any IRA strategy can reach.
  3. The collectibles rule is the next filter. Under §408(m), when an IRA acquires a collectible, the cost is treated as a distribution to the owner. The statutory list covers works of art, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages and other tangible personal property the Treasury designates, with an exception for certain bullion and government coins. Digital assets are not on that list. NFTs are different: in Notice 2023-27 the IRS said it intends to treat an NFT as a collectible under §408(m) when the asset or right it represents is a collectible, such as a gem, so such an NFT bought inside an IRA would be treated as distributed.
  4. Possession is the trap in self-directed structures. In McNulty v. Commissioner, 157 T.C. No. 10 (2021), IRAs owned single-member LLCs that bought American Eagle coins, which were kept at the owners’ home. The Tax Court held that an owner of a self-directed IRA may not take actual and unfettered possession of IRA assets; doing so produced taxable distributions, and accuracy-related penalties applied. The case concerned bullion coins, not crypto, but its reasoning is the standard against which IRA-owned crypto in a wallet the owner controls is measured. Separately, under §408(e)(2) a prohibited transaction under §4975 ends the account’s IRA status from the first day of that year.
  5. Workplace plans are a moving area. In Compliance Assistance Release 2022-01 (10 March 2022), the Department of Labor told 401(k) fiduciaries to use ‘extreme care’ before offering crypto. Release 2025-01 (28 May 2025) rescinded it and returned to a neutral position. Executive Order 14330, signed 7 August 2025, listed ‘actively managed investment vehicles that are investing in digital assets’ among alternative assets and directed the Department to clarify fiduciary duties. The Department published a proposed rule with a safe harbor on 31 March 2026, with comments closing 1 June 2026; as of mid-October 2026 the Federal Register shows it still as a proposal. Each employer decides its own plan menu.
  6. Costs and exits matter as much as the shelter. Self-directed custodians charge their own fees, withdrawals before age 59½ generally carry the 10% additional tax in §72(t) unless an exception applies, and traditional accounts carry required minimum distributions. Volatility does not change any of these rules. A practical check: read the custody agreement of any self-directed account and write down who holds the keys, whose name is on the wallet or exchange account, and what the custodian charges. This lesson explains how these accounts work; it does not recommend opening one or holding crypto in one, which a qualified adviser can review.

Key facts

  • Under 26 U.S.C. §408(a)(1), an IRA may accept contributions only in cash, apart from rollovers.
  • For 2026 the IRA contribution limit is $7,500, or $8,600 for people aged 50 or older.
  • Under §408(m), an IRA’s acquisition of a collectible is treated as a distribution of its cost, and the statutory list of collectibles does not name digital assets.
  • In McNulty v. Commissioner, 157 T.C. No. 10 (2021), the Tax Court held that a self-directed IRA owner who took physical possession of IRA-owned coins received taxable distributions.
  • The Department of Labor’s Compliance Assistance Release 2025-01 of 28 May 2025 rescinded its 2022 ‘extreme care’ guidance on crypto in 401(k) plans.
  • Executive Order 14330 of 7 August 2025 includes vehicles investing in digital assets among alternative assets, and the Department of Labor’s implementing rule was proposed on 31 March 2026.

Exercise nine, six, three, one

9CollectList up to 9 retirement accounts or plans you have or have studied, noting the type, the custodian and whether crypto exposure is held directly or through a fund.
6ClusterSort them into 6 categories: traditional IRAs, Roth IRAs, self-directed IRAs holding coins, workplace 401(k) plans, accounts holding exchange-traded products, and accounts whose custody terms you do not know.
3DistillReduce the 6 categories to 3 groups: accounts with clear custody and tax treatment, accounts with a possession or collectible question, and accounts whose terms you would need to read.
1CrystallizeWrite 1 sentence explaining, in your own words, why who holds the keys can decide whether an IRA’s crypto is still inside the IRA.

Fact check

Dates, figures and claims checked against the published sources listed below.

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