DISCLAIMER: I’m not a financial advisor and this is not financial advice. Investing involves the risk of loss. You agree that you alone bear all the risk of any financial or investment decision that you choose to make. All content is for informational purposes only.
Yes, you can invest in and own bitcoin and other cryptocurrencies using your SDIRA. The only items an IRA cannot invest in is life insurance, S-Corp stock, and collectibles as mentioned in IRC 408(m), which refers to tangible personal property such as “art, rugs, coins, etc.” and “any other tangible personal property the Secretary determines.”
The Internal Revenue Service (IRS) does not have a cryptocurrency-specific account. As a result, when investors talk about “Bitcoin IRAs”, “Crypto IRAs”, or “Cryptocurrency IRAs”, they’re talking about a self-directed IRA (SDIRA) that includes bitcoin or other digital currencies in its assets.
Your options for how to hold and/or trade cryptocurrency within a retirement account are expanding.
Can I Put Cryptocurrency In A Roth IRA Or Traditional IRA?
The IRS has treated bitcoin and other cryptocurrencies in retirement plans as property since 2014. Coins are taxed like stocks and bonds.
You don’t have to pay capital gains tax on any growth in the value of your bitcoin in a crypto Roth IRA. However, you will be unable to deduct any deposits from your taxable income. You will not pay taxes on a qualifying withdrawal from a Roth IRA because you already paid them on the monies deposited in the Roth IRA.
If you believe as I do that cryptocurrencies are going to greatly increase in value, a Roth IRA is an exciting option. You won’t be able to withdraw (without penalty) until retirement. But, you won’t pay tax on any increase in the value of the crypto!
If you satisfy the requirements for IRA contributions stipulated by the IRS, crypto contributions to a standard IRA are tax deductible. If you wait until you reach retirement age to withdraw from your IRA, you will incur normal income taxes on the withdrawal of assets.
Again, we are not tax or financial professionals. Be sure to check with your professional advisors to make sure you qualify and are in compliance with any IRS rules regarding IRA contributions.
SDIRA with LLC for Crypto (also called “Checkbook IRA”)
The only method to store crypto in an IRA until recently was to set up a self-directed IRA and an LLC. This is the most time-consuming and difficult option. However, it still gives you the most control. The procedures are as follows:
1. Establish and fund a self-directed IRA with a custodian who allows for alternative assets, such as LLCs.
2. Form and register an LLC, which is 100% owned by the IRA. The LLC therefore carries the same tax-advantaged status as the IRA. The income and expenses related to the assets will flow through the IRA LLC as required by the Internal Revenue Service.
3. Using funds from the IRA, the LLC opens a business checking account. This is why it is sometimes referred to as a “checkbook IRA”. The checkbook puts the account owner in full control of the transactions which are made by writing a check or wiring funds.
The funds in the IRA LLC’s business checking account are for the sole purpose of investing in any alternative assets allowed through self-direction including digital assets like crypto.
4. Open an account on a cryptocurrency exchange in the name (and tax number) of the IRA LLC. Your account manager or custodian can make trades for you. Or, you’ll use a secure platform to do your trading on the exchange in the account associated with the IRA LLC.
An expert will not suggest which coins to buy because you are investing in through a self-directed IRA. You determine which cryptocurrency to buy and sell.
As with all self-directed investments, it is crucial that the account holder conduct full due diligence. It is imperative not to co-mingle IRA and personal assets.
If you only want to have a SDIRA in order to invest in crypto, this probably is not the best option for you. It is more expensive and more difficult to set up.
401(k) Providers Offering Crypto
ForUsAll, a leading retirement investment platform for small businesses, announced in June 2021 the introduction of the Alt401(k), its retirement investment platform that allows employers to provide alternative investment options within 401(k) plans – a first of its kind. The company is enabling employers to offer cryptocurrency as the plan’s first alternative investment.
ForUsAll only serves about 70,000 employees but the announcement is an exciting sign that more people may get the opportunity to invest in crypto directly through their 401(k).
Cryptocurrency IRA Companies
Recently, custodians and other companies designed to help investors include bitcoin, ethereum and other cryptocurrencies in their IRAs have become increasingly popular.
Some of these companies include BitIRA, Regal Assets, iTrust Capital, and Bitcoin IRA (one of the early leaders in the field).
Cryptocurrency IRA Costs
Some cryptocurrency IRA providers simplify costs by charging a one-time or monthly fee. The upfront cost usually covers everything but transactions. You may pay a per-transaction percentage. Arrangements with a monthly charge may be all-inclusive with no transaction fees. Cryptocurrency IRAs may incur some or all of these costs:
Monthly or annual storage fee
Custodial or administrative fees
Percentage each time you buy or sell digital currency
Fees differ from one company to the next. Compare the services and prices that are available. You’ll also spend more if you want a professional to make your trades or provide one-on-one support. However, until you get experience in cryptocurrency trading, the peace of mind you will gain may be worth the expense.
Other Ways to Add Cryptocurrency to an IRA
If you’re not comfortable opening a cryptocurrency IRA, you can still buy investments offering exposure to digital currency.
Bitcoin ETFs are exchange-traded funds offering a basket of cryptocurrencies at one market price.
A mixed cryptocurrency index fund or mutual fund can reduce risk, but read the prospectus to learn the goals of the fund.
The downside to these is that you don’t get to choose the specific blend of crypto held in your account. You can buy ETFs and index or mutual funds in a self-directed IRA.
Another approach to profit indirectly from cryptocurrencies is to invest in firms that benefit from a cryptocurrency boom. Use a self-directed IRA to buy stock in crypto exchanges, semiconductors, payment companies like PayPal and Square and other industries that crypto will be impacting.
What Is The Best Crypto IRA?
A bitcoin IRA can be a valuable addition to your retirement account, especially if you want a well-diversified portfolio. But first, you must comprehend the risks. The finest Bitcoin IRA firms can help you pick the appropriate cryptocurrency and trade digital assets in a tax-advantaged account.
BitIRA offers the highest security. They claim to provide the world’s most secure digital currency IRA. They have in place five layers of protection which includes insurance.
BitIRA takes care of the investing process from start to finish. A digital currency specialist sets up your rollover IRA (or new IRA), executes trades and assists with choosing the best cryptocurrency blend. You retain complete control over your digital currency, while help is always available for selecting assets.
BitIRA charges users a $195 annual fee, plus a $50 account establishment fee and a monthly 0.05% storage fee.
It supports Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, Bitcoin Sv, Zcash, and Stellar Lumens.
iTrustCapital stands out for its transparent and straightforward pricing: a $29.95 monthly service fee and a 1% charge on crypto trades. This is a bonus for those with large balances, who can accumulate significant fees in other pricing arrangements.
The company’s 24/7 trading platform executes orders in real time, and orders are settled within minutes.
iTrustCapital was founded by industry leaders in the alternative investment IRA industry.
iTrustCapital supports the following coins, plus gold and silver: Bitcoin, Litecoin, Ethereum, Bitcoin Cash, EOS, Stellar, Chainlink, Cardano, and Polkadot.
Bitcoin IRA coordinates exchanges, digital wallets and IRA custodians on behalf of retirement investors.
The company oversees cryptocurrency IRA rollovers. Bitcoin IRA boasts a user-friendly interface, 24/7 real time trading, and full phone support.
They have a high degree of security and client insurance through Lloyd’s of London.
Its smooth user experience makes it a good choice, particularly for newer traders who are rolling over their IRAs from traditional providers. They provide an extensive online knowledge base with live currency prices, videos, e-books and tutorials.
Bitcoin Saver IRA requires a minimum $100 per month contribution, opening cryptocurrency investing to just about anyone.
More advanced traders may also be interested in BitcoinIRA Earn. This new product allows users to lend their IRA funds in exchange for monthly interest income.
They support a rather limited list of cryptocurrencies — Bitcoin, Ethereum, Ripple, Litecoin, Bitcoin Cash and Ethereum Classic.
Bitcoin IRA’s account and maintenance fees vary based on a user’s initial deposit size.