Buy Cryptocurrency to Diversify Your Retirement Savings With a 403b Rollover
Goldman Sachs deemed Bitcoin to be the best-performing asset of 2019, exceeding the runner up—tech stocks—by 31 percent. The crypto and blockchain industry continues to note that major financial institutions are showing increased interest in cryptocurrencies, with skepticism in decline and adoption continuing to rise.
Buying crypto can take many forms. One option, which allows you to potentially leverage some tax benefits, is to use some of your retirement savings to buy crypto and hold it in a self-directed IRA. This is an attractive option for many people since adding cryptocurrency to your retirement portfolio can provide a hedge against currency and financial instability.
The benefits of cryptocurrencies include long-term growth potential, privacy and security, and often limits on supply that protect against inflation.
One way to tap into those benefits is to leverage your existing 403(b) account to add cryptocurrencies to your asset mix. After a quick review of what a 403(b) account is—including contribution limits and rules—we will look at how to roll over your existing retirement savings into the type of IRA—a self-directed IRA—that allows you to hold alternative assets like crypto.
(If you want to jump ahead to the rules of rolling over your 403(b), click here.)
What is a 403(b)?
First, let’s examine what a 403(b) account is. It is a tax-advantaged retirement savings plan offered to employees of public educational institutions, nonprofit organizations, and churches.
Specifically, employees eligible to participate in a 403(b) plan work for:
- Tax-exempt organizations established under section 501(c)(3);
- Public school systems, including systems organized by Indian tribal governments;
- Cooperative hospital service organizations; and
- Uniformed Services University of the Health Sciences, a federal government school that prepares medical professionals to serve in the U.S. military.
In addition, the following ministers can participate in a 403(b) plan: those employed by a section 501(c)3 organization, self-employed ministers, and those who function as ministers in day-to-day professional responsibilities with their employer, even if the employer is not a tax-exempt organization.
403(b) plans were first launched in 1958 as tax-sheltered annuity accounts, but the annuity restriction was lifted in 1974. Now, 403(b) plans can take advantage of many investment vehicles, including fixed and variable annuities and mutual funds.
Some 403(b) plans are subject to the Employee Retirement Income Security Act (ERISA) and some are not. ERISA requires that retirement plans provide for vesting of employee pension benefits after a minimum number of years and that the employers who sponsor plans satisfy certain minimum funding requirements.
Benefits of a 403(b)
There are a number of benefits to a 403(b) account:
- Contributions are deductible on federal income taxes. The money comes out of your salary and goes untaxed into your 403(b) plan until you withdraw it. Contributions are either excluded or deducted from you income, which reduces your current taxes.
- Money put into the 403(b) grows tax-free until you withdraw it. Delaying taxes on your money helps it grow through compounding on the amount that would have otherwise been paid in taxes. And many people find themselves in a lower tax bracket when they withdraw it.
- Employers often match your contributions. Matching formulas vary depending on the company, but a common match is 50 percent of your contribution up to six percent of your income. Most companies have a vesting requirement, which means you have to work for the company for a certain amount of time to benefit from the matching contribution.
- You may be eligible to take a retirement savings contribution credit. If you or your employer makes eligible contributions to a retirement plan, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly.
Rules of a 403(b) Plan
There are some rules you must consider when evaluating a 403(b) plan.
First, the limit on annual contributions to a 403(b) from your salary was $19,000 in 2019, and has increased to $19,500 in 2020. For people who are 50 years or older, a catch-up contribution of up to $6,000 was allowed in 2019, and now $6,500 in 2020.
Some individuals who have been with their employer for 15 years or more can make additional contributions of up to $3,000, depending on the plan.
The IRS also has a limit on annual additions, which include salary contributions, employer contributions not made under a salary reduction agreement, and after-tax contributions. The 2019 limit on annual additions was the lesser of $56,000 or 100 percent of your includible compensation for your most recent year of service. In 2020, this has gone up to $57,000.
The IRS also offers a tax break to moderate and low-income taxpayers who are trying to save for retirement, known as the Saver’s Credit. To claim a 2019 Saver’s Credit related to your 403(b), your adjusted gross income (AGI) cannot be more than $64,000 if your filing status is married filing jointly; $48,000 if your filing status is head of household (with qualifying person); or $32,000 if your filing status is single, married filing separately, or qualifying widow or widower with a dependent child.
For the 2020 Saver’s Credit, these numbers have gone up to: an AGI of $65,000 if married filing jointly; $48,750 if head of household; or $32,500 for all other filers.
Should I invest in crypto with a 403(b)?
Cryptocurrencies have a number of characteristics that make them an attractive option if you have a 403(b) account.
For example, most cryptocurrencies have a decentralized infrastructure, making it virtually impossible for governments to influence their value.
In addition, many are limited in supply and impossible to inflate. For example, there is a hard limit of 21 million Bitcoin that can be created.
Information on cryptocurrency ownership and transactions is hidden by several encryption levels, and third parties cannot intervene with cryptocurrency transactions. As a result, cryptocurrency activity is private and unrestricted.
How do I invest in crypto with a 403(b)?
Purchasing cryptocurrency within a retirement savings account requires a specific type of IRA, known as a self-directed IRA (SDIRA). The IRS recognizes this type of account as being capable of holding assets beyond the typical list of mutual funds, stocks, and bonds.
Can I roll over my 403(b) plan into a cryptocurrency IRA?
If eligible, you can take the funds you have stored in an account like your 403(b) and—through a tax-free rollover—place a portion or all of it into an SDIRA. Your self-directed IRA can be one of several types, including a Traditional, Roth, Simplified Employee Pension (SEP), or Savings Incentive Match Plan for Employees (SIMPLE) IRA.
In order to roll over your 403(b) into an IRA, you must no longer be working for the employer with whom you established the 403(b). With some plans, once you are over 59.5 years old, you may be able to roll over your 403(b) even if you’re with the same employer. Your 403(b) plan administrator might have some special paperwork requirements in order to get your assets distributed, including a distribution request form and an acceptance letter from your IRA custodian.
Bring any additional questions you may have about rollovers, from eligibility through paperwork, to your designated Digital Currency Specialist who can get you on-track with answers.
Once you have rolled over your 403(b) to a self-directed IRA, you can set up a crypto IRA with BitIRA. The process is straightforward, involving a few easy steps:
- Get your free info guide.
- Call us at 800-299-1567, and we will pair you with a Digital Currency Specialist who can answer your questions and start you on the process of opening your IRA.
- Identify your funding sources and/or accounts to roll over into your self-directed IRA, which may include an existing 403(b) plan if it qualifies. Your Specialist can review this with you.
- Pick what type of self-directed IRA you would like to open, including Traditional, Roth, SEP, or SIMPLE.
- Choose the type(s) of cryptocurrency you would like to place in your retirement account, and make the purchase to finalize opening your account.
- Monitor the performance of your new Digital IRA in BitIRA’s Customer Web Portal, My BitIRA. Initiate buying, selling, or swapping cryptocurrency within your Digital IRA from the My BitIRA portal.
The long-term growth potential of cryptocurrencies and the built-in inflation safeguards many of them bear make these digital assets an inviting investment choice. As we’ve seen here, one way to buy cryptocurrency is to roll over some or all of your 403(b) account into a self-directed IRA, which can then be used to purchase Bitcoin and other digital currencies. The process is easy with the right support; here at BitIRA, we’re on-hand to walk you through.