A self directed IRA LLC is a powerful and flexible retirement platform that allows for full diversification with investments into anything the IRS rules allow, and puts the IRA account holder in full control of all investment activities.
Through the use of a special purpose Limited Liability Company (LLC) this vehicle provides “checkbook control”. The LLC is wholly owned by the IRA, and therefore has the same tax-sheltered status as the IRA itself. The IRA account holder can serve as the manager of the LLC and direct the investment activities personally. LLC funds are held in a bank account of the IRA owner’s choosing, and all investment transactions take place from that account. Safeguard Advisors
Can Your IRA Own Bitcoin?
Well, the short answer is: “Yes, your IRA can own Bitcoin and other forms of cryptocurrencies, such as Ethereum and Litecoin.” 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.” Bitcoin is certainly an intangible item by all accounts and would not be considered tangible. As a result, an IRA can own Bitcoin or other cryptocurrency since such investments are not restricted.
How Are Bitcoin Gains Taxed?
The IRS issued IRS Notice 2014-21 addressing the taxation of Bitcoin and cryptocurrency, and stated that Bitcoin and other forms of virtual currency are property. The sale of property by an IRA is generally treated as capital gain, so the buying and selling of cryptocurrency for investment purposes wouldn’t trigger unrelated business income tax (UBIT) or other adverse tax consequences that can occasionally arise in an IRA.
How Do I Own Bitcoin with My SDIRA?
There are three steps to own Bitcoin or other cryptocurrency with your IRA:
1. First, you will need a self-directed IRA with a custodian who allows for alternative assets, such as LLCs.
2. Second, you will invest funds from the IRA into the LLC. Your IRA will own an LLC 100%, and that LLC will have a business checking account.
3. And third, the IRA/LLC will use its LLC business checking account to establish a wallet to invest and own Bitcoin through the wallet. The most widely used Bitcoin wallet is through a company called Coinbase, and you can use your wallet on Coinbase to buy, sell and digitally store your cryptocurrency.
There are already certain publicly-traded funds and other avenues (e.g. Bitcoin Investments Trust) where you can own shares of a fund that in turn owns Bitcoin. But, if you want to own Bitcoin directly with your IRA, you’d need to follow the steps outlined above. Keep in mind, Bitcoin and other forms of cryptocurrency have significant potential in the digital age. However, as with any new market investment, make sure you proceed with caution, and don’t “bet the farm” or “go all in” on just one investment or deal. Mat Sorensen
Checkbook Control Bitcoin Compliance
Bitcoin retirement account investing using checkbook control is a new and exciting way to leverage tax-advantaged retirement accounts. Determining title, ownership, and legal rights to Bitcoin is an evolving area of law.
Following are some best practices to avoid Prohibited Transactions in your Bitcoin retirement account:
Bitcoin accounts should titled in the name of your IRA-LLC or Solo 401k Trust. All transactions you engage in on behalf of your retirement account are in your capacity as IRA-LLC Manager or Solo 401k Trustee, which should be reflected on any documentation (e.g., John Doe as Manager of IRA-LLC, John Doe Trustee FBO Solo 401K Trust). The EIN attached to any account should use the EIN of your IRA-LLC or Solo 401K Trust. Use an “institutional account” for your IRA/LLC or One-Particpant 401k Plan, such as those offered by GDAX, Gemini, and itBit. You should have separate keys (public and private keys) and “addresses” for your retirement account Bitcoin investments and personal Bitcoin transactions. It is advisable to have separate Bitcoin wallets, as well. ReSure LLC
Getting Off The Sidelines And Getting Your Money Working For You
If you feel a self directed IRA may be a great way for you to invest a portion of your retirement in things you know like cryptocurrencies… then dive in, take some time to educate yourself on the pros and cons of a SDIRA (those websites I put above are a great place to start. They have all kinds of resources to learn more about self directed IRAs and how you can use them to invest in wide array of asset classes like cryptocurrencies).
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