Investing in cryptocurrency is becoming more and more popular. Since 2014, the IRS has made it possible to do this by classifying cryptocurrencies as personal property for tax purposes. However comma before you start a bitcoin IRA, you need to make sure that you know what you are doing so that you don't get taken advantage of.
How to
Start a Bitcoin IRA
Even though the IRS has allowed
cryptocurrencies for 4 years now, a lot of people continue to think that the
only asset classes allowable in an IRA are things such as mutual funds and
stocks. The reality is that the IRS allows all types of asset classes,
prohibiting only collectibles and life insurance. Cryptocurrency is not a
collectible nor is it life insurance, which means it is allowable in a
retirement account.
However, the reality is also that the fact
that something isn't prohibited by the IRS does not mean it is explicitly
endorsed either. This is why they are now quite a lot of companies out there
that engage in deceptive marketing techniques comma stating for instance that
the IRS has approved there investment offerings. This is a fraudulent and
entirely false statement, as the IRS does not approve any Investments, only
listing what is prohibited.
There
are three important steps to be aware of if you want to start a bitcoin IRA.
Those are:
- To use the correct type of IRA. You must
open a self directed IRA, meaning that you can invest in anything allowed
by law. Do not accidentally open a captive IRA, which means that you can
invest solely in the assets offered by the IRA company. It is up to you to
decide whether you are interested in a Roth IRA or a traditional IRA.
- To open a bitcoin
wallet. Once you have put money into your self directed IRA,
you will need to have a crypto wallet as well. This is almost like a
safety deposit box in which all the necessary information is held enabling
you to purchase, sell, and use cryptocurrency. There are many vendors that
offer wallets, and you should consider there degrees of security in
particular. Sometimes, the IRA custodian will only agree to offer you
cryptocurrency IRA Solutions if you are registered as an LLC, and that the
IRA is the owner of the LLC. If this is what you have done, then it is
important that your digital wallet is named after the LLC.
- You must fund your bitcoin wallet using
funds only from your IRA. You cannot use IRA funds as well as other
capital sources. This is unambiguously prohibited, in fact. The tax
problems you would get if you were to ignore this rule are cataclysmic.
The reason for this is the exclusive benefit your received by having an
IRA in first place. There is zero flexibility on this, meaning you cannot
even use personal funds to make a purchase and then withdraw those same
funds from your IRS in order to rebalance the accounts.
