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How is Bitcoin Taxed, Changing an EIN with a Solo 401(k) and more | Client Q&A

AdMail Podcast
3 Minute Read

Last Updated on March 23, 2021

In this week’s episode, IRA Financial’s Adam Bergman Esq. answers questions about changing the EIN for your Solo 401(k) business, the Biden 401(k) credit proposal and the taxation of Bitcoin held in an IRA vs. personally.




Question 1 from YouTube: Can you set up a Solo 401(k) with an EIN attached to a sole proprietorship and later change it to an EIN attached to an LLC S-Corp as the business evolves?

Even if your business starts off as an LLC, you can later change it to an S Corporation. It doesn’t matter if you want to dissolve the sole proprietorship or you want to merge it into a corporation. So long as you are the sole owner of the businesses in question or they are part of the same control group, you can amend the Solo 401(k) plan documents.

The EIN can remain the same (or if you need to change it), your plan administrator would notify the IRS of the changes. The original type of entity of your business doesn’t need to remain the same to utilize the Solo 401(k). This assumes you are still eligible to open the plan, meaning you have no full-time employees, other than a spouse or business partner.

Question 2 from John G in Fayetteville, AR: Can you explain the Biden 401(k) credit proposal in simple terms?

The Democrats are control of the US government, as they have the majority in the Senate and the House, along with Joe Biden as president. The Biden/Harris plan includes some interesting changes to the 401(k) system. We always say the retirement system is bipartisan because it is based on simple math.

Biden’s proposal essentially gets rid of the tax deduction you receive on your pretax contributions. Instead, you everyone would get a flat credit, no matter your income. Obviously, the higher tax bracket you are in, the more deduction you will receive as is. Biden thinks giving everyone a tax credit (presumably 24-26%) will encourage those in lower brackets to save more. Instead of a 10-15% deduction, they get a larger credit based on the amount the contribute to the plan. If this plan ever comes to fruition, it probably will not happen anytime soon.

Question 3 from Joan A in Galveston, TX: Can you explain the difference in tax treatment of buying Bitcoin in an IRA versus personally?

Bitcoin may be the best performing asset of 2020, and continues to rise this year. Everyone wants to get in on it, and other cryptocurrencies. It’s important to know that Bitcoin is treated as property, just like stocks and real estate. This means it is subject to the capital gains tax regime. If you hold it less than 12 months, you are subject to short-term capital gains; greater than 12 months is subject to long-term gains.

Therefore, when investing personally in Bitcoin, you must keep track of every transaction you make. You must know when you bought it and how much it was. When you decide to sell it, you need to figure out how much it is worth now, how long you’ve held it and how much in gains (or losses) you have. You will then owe taxes on those gains.

However, if you invest in a Self-Directed IRA, you don’t have to worry about the taxes! It doesn’t matter who the president is or how taxes are going up. So long as the crypto is owned with your IRA, it’s not taxable. You can buy and sell at your leisure, and you don’t need to worry about capital gains. The only time you have to concern yourself with taxes, is when you distribute the Bitcoin from your IRA. If you have a Roth IRA, you never have to worry about taxes ever again!

AdMail – Keep it Coming

We hope you enjoyed the latest episode of AdMail. Mr. Bergman will continue to respond to questions each week so long there is a demand for them! If you have any questions for him, email him at abergman@irafinancial.com.

As with his other podcasts, you can check out AdMail on SoundCloud. Be sure to subscribe to know when the next one pops up! Thanks for listening and have a great day, Self-Directed Nation!

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