2025 Year-End Tax Strategies for Crypto Investors - Establish a Self-Directed IRA for Crypto

Invest in Crypto Through Retirement Accounts - 2025 Year-End Tax Strategies for Crypto Investors

(Part 6 of the 2025 Year-End Tax Strategies for Crypto Investors series)

In earlier parts of this series, 2025 Year-End Tax Strategies for Crypto Investors, we’ve covered how to step up your basis, harvest losses, use the wash-sale exception, donate appreciated crypto, and gift crypto to loved ones.

In this final article, we’ll focus on using self-directed IRAs and solo 401(k)s to invest in cryptocurrency through tax-advantaged retirement accounts—an effective way to grow your holdings while deferring or avoiding taxes altogether.

Establish a Self-Directed IRA for Crypto

If you’re looking to purchase more crypto, you should consider doing so through an IRA. This must ordinarily be a self-directed IRA (SDIRA), not a conventional IRA you establish with a bank, brokerage, or trust company. Conventional IRA custodians typically do not permit your IRA to purchase crypto directly, though many of them will permit you to invest in crypto exchange-traded funds (ETFs).

You need to choose an IRA custodian that permits self-directed investments, including investments in crypto. There are dozens of them. SDIRAs are also commonly used to invest in real estate, gold, and other alternative investments.

Your SDIRA can be either a traditional IRA or a Roth IRA. With a traditional IRA, you get to deduct your contributions up to an annual limit. For 2025, the limit is $7,000, or $8,000 if you’re 50 or older.16 Withdrawals after age 59 1/2 are taxed at ordinary income rates (not capital gains rates).

With a Roth IRA, you get no deduction for the contribution, but earnings are not taxed when you take distributions, provided you are over age 59 1/2 and have owned the account for five years.

After opening your SDIRA account, you’ll need to fund it. You can’t transfer your existing crypto holdings into an SDIRA, because the IRS requires IRAs to be funded with monetary contributions like cash. However, you can sell your crypto and then use the money to fund your SDIRA. You can also transfer money from an existing IRA or 401(k), make other cash contributions, or roll over a 401(k) into your SDIRA.

If you sell crypto or other property inside a self-directed IRA, you don’t pay personal taxes on the profit at the time of sale. In a traditional IRA, you pay ordinary income tax only when you withdraw funds—whether in cash or as crypto. If you withdraw your holdings as crypto, you’ll owe income tax on the fair market value of the crypto at the time of withdrawal.

Establishing and contributing to an SDIRA is not exactly a year-end strategy, because you have until April 15, 2026, to establish your 2025 IRA. But it’s something to consider as the year comes to a close, as part of your tax-savings strategy for 2025.

Establish a Self-Directed 401(k) for Crypto

What about using a 401(k) to purchase crypto? Most employer 401(k)s don’t allow this. But some do, so check with your employer plan. If you’re self-employed and you have no employees other than your spouse, you can establish a self-directed solo 401(k) and use it to purchase crypto.

Like IRAs, solo 401(k)s can come in two flavors: regular (tax-deductible contributions) or Roth (non-deductible contributions, with the same tax benefits described above. But not all solo 401(k) plan providers have a Roth option.

The big advantage self-directed solo 401(k) plans have over SDIRAs is that the contribution limits are much greater. If you have your 401(k) plan in place on or before December 31, 2025, then you can make your personal employee contribution on or before December 31, 2025, of up to

· $23,500 if you’re under age 50,17

· $31,000 if you’re age 50 through 59 or older than 63,18 and

· $34,750 if you’re ages 60 through 63.19

You also can make the employer contribution of up to 25 percent of your compensation on or before December 31 or at any time before the 2025 tax return is due, such as by April 15, 2026, for the Schedule C, Form 1040 (or with extensions by October 15, 2026).20

Between you and your business, the maximum total contribution to your 401(k) or similar account cannot exceed

· $70,000 if you are under age 50,

· $77,500 if you are ages 50 through 59, or age 64 or older, and

· $81,250 if you are ages 60 through 63.

You need to find a self-directed 401(k) plan provider that permits investments in cryptocurrency. You must adopt a written plan and then set up a trust or custodial account with your plan provider to invest your funds.

You need to establish and fund your 401(k) employee contribution by year-end, so act fast.

Stay tuned: additional articles in this series will continue exploring advanced year-end crypto tax planning opportunities.

Contact us today for expert guidance:

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1. IRC Section 1211(b)(1)

2. IRC Section 1212(b)

3. IRS Notice 2014-21

4. Charity Navigator ; Candid (formerly GuideStar)

5. IRC Section 170(f)(18)

6. IRC Section 63(c)(7)

7. IRS Frequently Asked Questions on Virtual Currency Transactions — updated April 23, 2025, Q. 35

8. Ibid.

9. IRS Publication 526, Charitable Contributions (2024) — dated Feb. 26, 2025, p. 15

10. IRS Virtual Currency FAQs — Q. 35

11. Chief Counsel Advice 202302012

12. IRS Virtual Currency FAQs — Q. 36

13. Revenue Procedure 2024-40

14. IRS Virtual Currency FAQs — Q. 32

15. IRC Section 1015

16. IRS Notice 2024-80

17. IRC § 402(g)(1)(B) ; Notice 2024-80

18. IRC § 414(v) ; Notice 2024-80 — For 2025, the $31,500 limit applies to ages 50–59 and 64+.

19. Treasury Decision 10033 — adds an $11,250 catch-up to the $23,500 base = $34,750.

20. IRC § 404(a)(3)(A)(i)(I)

    
    

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