Cryptocurrency IRA: An Introduction
Cryptocurrency IRAs are becoming increasingly popular in American investment circles.
Cryptocurrency IRAs are also part of a broader category of self-directed retirement accounts investors can use to maximize their exposure to alternative assets.
A cryptocurrency IRA – the kind that holds cryptocurrency, Bitcoin,Ethereum and other cryptos – can be held in a self-directed retirement account.
Since cryptocurrencies is recognized as property by the IRS, they can be held as investments inside an IRA account.
Access to a bigger pool of investments is one of the chief differences of the self-directed IRA. In addition to cryptocurrencies, self-directed IRAs offer exposure to real estate, precious metals and a host of other assets. Of course, they can also be used to invest in traditional stocks and bonds.
Self-directed IRAs can also help investors maximize their crypto holdings by offering unique tax advantages that otherwise couldn’t be realized had they purchased them through an exchange. By keeping your cryptocurrency inside an IRA, you won’t face any tax penalties on investment returns. Of course, this no longer applies when you take the funds out.
Common Digital IRA Misconceptions
There are several misconceptions currently plaguing the market for cryptocurrencyl IRAs. Investors should weigh these carefully before deciding to embark on a cryptocurrency-driven retirement account. More importantly, they should steer clear of bogus claims issued by investment managers.
The common misconceptions surrounding digital IRAs.
A cryptocurrency IRA from company X is unique in that it is fully IRS compliant.
No company can claim that it has a unique offering simply because it offers a cryptocurrency IRA that is IRS compliant. In reality, this is a capability that a small number of companies currently offer. In order for a cryptocurrency IRA to be IRS compliant, you simply must ensure that you have set up a self-directed IRA with a qualified custodian and that you adhere to the rules of purchasing and storing your assets so that you don’t run afoul of any IRS regulations.
Company Y recently introduced a cryptocurrency IRA which allows investors to roll over an existing IRA or 401(k) into a cryptocurrency IRA.
While this can oftentimes be correct, statements like this from some companies make it sound as though any IRA or 401(k) can be moved to a cryptocurrency IRA. However, that is not always the case. For example, if you opened your 401(k) with your current employer, you likely cannot move it to a cryptocurrency IRA. One exception is that those who are 59 1/2 years or older may be able to make this move without any penalties. The rules can be complex in some cases, so we often refer our customers to their accountants to fully understand their personal situation.
What are the rules and fees in place for self-directed IRAs, ie, maximum annual contribution of $5,500, requirement of a custodian, etc.
In terms of functionality, Cryptocurrency IRAs have the same rules as any other IRA, with the same maximums and custodian rules. In addition, you can set up your Digital IRA as any other IRA – whether it be Traditional, Roth, SEP or SIMPLE.
In order to open a Cryptocurrency IRA, you must place all of your retirement savings in cryptocurrencies.
You do NOT need to do this. A Cryptocurrency IRA is simply a descriptive name for an IRA that contains some portion of digital currencies in your IRA. It falls under the umbrella of a self-directed IRA, which allows for a broad range of investment options within your IRA. Therefore, you can choose the allocation of digital currencies that you’re most comfortable with.
The cryptocurrency market is maturing at a rapid rate, with cryptocurrency and a handful of altcoins offering the biggest investment appeal. Cryptocurrency regulations have struggled to keep pace with the evolution of the market, but investors are generally in the clear when it comes to generating retirement savings via cryptocurrency assets.
You can Invest in Cryptocurrency using a Self Directed IRA LLC.
Using Self Directed IRA LLC funds to invest in cryptocurrencies, such as cryptocurrencys, could allow the investor to defer or even eliminate, in the case of a Roth, any tax due from the investment. Retirement account investors interested in mining cryptocurrencys versus trading, could become subject to the Unrelated Business Income Tax (UBIT) rules if the “mining” constituted a trade or business.