Bitcoin (BTC -0.31%) has gained notoriety for a number of reasons, most obviously because it's up 97% year-to-date and has vastly outgained the S&P 500 over the past several years. With great gains often come high taxes, so it's especially important to know which accounts are best suited to holding the popular cryptocurrency. 

Here, we'll look at the tax-related pros and cons of owning Bitcoin in accounts with different tax treatments.

1. Your 401(k)

It's still pretty common for employers to keep Bitcoin off their investment menus. However, in a tax-deferred 401(k) or 403(b), there are benefits to holding Bitcoin if you're able to buy it. 


  • Tax-deferred growth, meaning you won't need to pay taxes until you withdraw money in retirement.
  • 401(k)s enjoy special bankruptcy protection and are generally shielded from creditors.
  • Relatively large contribution limits allow for relatively large purchases.


  • Bitcoin derives its value from growth -- not income -- so tax-deferral has more limited applicability.
  • Most employers don't allow Bitcoin in their sponsored 401(k)s.
  • There's no long-term capital gains tax treatment available.
  • Not everyone has a 401(k).
Person doing his taxes.

Source: Getty Images

2. A taxable brokerage account

A taxable brokerage account simply refers to an account you open online that receives no special tax advantages. It's considered to be the run-of-the-mill, standard investment account you can open up on nearly any brokerage website.  


  • Accessible to most people regardless of employment status.
  • Offers favorable long-term capital gains tax treatment if held over one year. 
  • Bitcoin pays no dividend, so you won't increase your taxable income by default.
  • There's no additional tax upon withdrawal.
  • You have flexibility in withdrawals.


  • Gains will still be taxed when you sell; no shielding available.
  • Large, short-term gains have the potential to be taxed significantly.

3. Your Roth IRA

Roth IRAs are popular tax-free retirement accounts that accept only after-tax deposits -- that is, money that's already been taxed. Roth IRAs are usually ideal for high-growth investments, as you'll be able to lock in and withdraw any gains entirely tax-free.


  • Fully tax-exempt once you deposit funds.
  • Ideal for highest-growth investments.
  • Valuable estate planning tool.


  • Relatively small annual contribution limits: $6,000 for those under 50 and $7,000 for those over 50.
  • Valuable investing space  could be lost if Bitcoin crashes substantially.
  • May be unavailable to high-income earners in 2022 if new legislation passes.
  • It's a risky way to invest for retirement.
  • You can't access earnings without penalty unless the account has been open for five years.

Source: Getty Images.

4. Your HSA

Your health savings account (HSA) is an unlikely candidate for your next Bitcoin investment, but it is in theory possible to hold crypto there. You'll likely need to buy a security that tracks Bitcoin, like Grayscale Bitcoin Trust (GBTC -1.22%), if you go this route. 


  • It's a fully tax-exempt investing account that may come with employer deposits.
  • You can access it through a brokerage account attached to HSA.
  • It can be viewed as an extension of your Roth IRA.


  • Very limited contributions: $3,600 in 2021 for a single individual; $7,200 for a family.
  • HSA funds are truly meant to cover medical expenses.
  • Bitcoin may be too risky an investment for an HSA.
  • Not everyone has access to an HSA through their employer.

Overall, the two best bets for investing in Bitcoin are through a regular taxable account and a Roth IRA, specifically for the reasons mentioned above.

Taxable accounts tend to be more flexible than standard retirement accounts, but you'll need to be aware of higher short-term taxation if you sell out of your winning crypto positions early.

Roth IRAs, however, offer long-term, tax-free investing. But this comes at the cost of more rules and lower contribution limits.

Know the tax consequences

No matter which account you decide is right for you, be aware of the tax consequences of holding Bitcoin. Your mileage is likely to vary widely when it comes to investing in Bitcoin: where you buy it, when you buy it, and how you buy it all matter greatly. Take time to study the details and you'll be well on your way to becoming a seasoned crypto investor.