How Cryptocurrency IRAs Work

1. Complete Your IRA Application

Complete the Crypto IRA account application. This easy to complete form can be submitted in less than 10 minutes.

2. Transfer Your IRA or 401(k) Funds

Once your account is approved, we request a transfer of your funds from your existing retirement account into your new Crypto IRA.

3. Buy Your Crypto

After your funds arrive, we’ll schedule a phone call with you to perform a live trade and buy your cryptocurrency.

4. Access Your Exclusive Bitgo
“Cold Storage” Wallet

Your crypto is stored securely in our exclusive digital wallet with Bitgo, the leader in multi-signature encryption technology.

State of the Art Cryptocurrency Security

We provide a multi-layered system to ensure absolute security for your Cryptocurrency IRA.

YOUR DIGITAL WALLET

Your cryptocurrency is secured by BitGo, an industry leader in multi-signature encryption and security with billions of dollars in transactions/month.

Learn more about Bitgo

YOUR SECURITY KEYS

Each CryptoIRA.com client has their assets protected by three unique keys, which are required to transact. These three keys are held by:

  • Your digital wallet (BitGo)
  • Your crypto IRA custodian (Kingdom Trust)
  • Your backup key provider (Keytern.al)

ID + VOICE VERIFICATION

Unlike normal exchange transactions, CryptoIRA.com utilizes additional layers of security such as ID verification and voice confirmation when we execute your live trade. This ensures absolute security for your transfers and purchases.

Cryptocurrency IRAs

As cryptocurrencies continue to gain in popularity and market capitalization, more and more investors are looking for ways to participate in these exciting markets. For the long-term investor, one of the best ways to participate in these markets may be through a cryptocurrency IRA. This guide can show you the ins and outs of a cryptocurrency IRA, and contains valuable information for those considering making a long-term investment in one or more cryptocurrencies.

Why Invest in an IRA Account?

An IRA account can provide an excellent investment vehicle for long-term savings. There are multiple types of IRA accounts, including traditional, Roth and SEP. For the purposes of this guide, the focus will be on a traditional IRA account.

Regardless of what investment choices you make within an IRA, this account type has two primary advantages:

  • The potential for tax-deferred growth: Perhaps the single biggest advantage of an IRA account is the potential for tax-deferred growth. This means that any gains made on investments within the account are non-taxable, provided that all applicable rules and guidelines have been followed. An IRA account gives you the flexibility to trade actively, or to simply buy and hold. Both realized gains and “paper” profits may remain non-taxable if all rules are followed.
  • Contributions may be tax deductible: Contributions made to an eligible IRA account may be tax deductible. See the section below for further details.

IRA accounts can also provide a great deal of investment choices and control. Although some IRA accounts may be limited to equity and fixed income products, a self-directed IRA account can give the account holder the ability to invest in a wider range of products. Self-directed IRA accounts are covered in more detail below.

Are Cryptocurrencies Eligible for Purchase Within an IRA?

The answer to this important question is yes. Although the IRS may not explicitly state that Bitcoin or other cryptocurrencies are IRA approved, they also have not stated otherwise. In fact, the IRS did recently offer some guidance regarding virtual currencies. The IRS virtual currency guidance released in March of 2014 does highlight numerous key points as to how cryptocurrencies may be treated for taxation purposes. Some of the major points included in the guidance are the following:

  • Virtual currencies are treated as property for taxation purposes, therefore general  tax principles applied to property transactions would also apply to virtual currency transactions.
  • Payments made using virtual currency is subject to the same reporting standards as any other payment made in property.
  • Any employee wages paid in virtual currencies are taxable to the employee and must be reported using a W-2. Such payments are subject to federal income tax withholding and payroll taxes.
  • For self employed persons, payments made using virtual currencies are taxable and must be reported. Payers must typically issue a form 1099 for such payments.
  • Gains or losses made from the exchange or sale of virtual currencies depend on whether the currency is a capital asset held by the taxpayer.

This guidance would seem to make clear the notion that the IRS views Bitcoin and other cryptocurrencies as property, and it may be taxed in the same fashion.

A recent article from Forbes.com also discussed the topic of IRA eligibility in depth. According to the article, IRA investments in cryptocurrencies are not IRA approved, but it also stated that “Bitcoin is not statutorily prohibited in the law. In fact, only two types of assets are explicitly incompatible with IRAs: life insurance and collectibles.”

Clearly, cryptocurrencies are not a form of insurance. Coins, however, are often considered collectible by the IRS, and thus this issue did provide a great deal of confusion among those interested in adding cryptocurrencies to an IRA.

The IRS guidance discussed previously seemed to put the issue to bed, however, as it made clear that the IRS viewed crypto or virtual currencies as property.

So What Makes a Crypto IRA a “Crypto IRA?”

To be clear, a Crypto IRA is simply a self-directed IRA account in which the account holder may buy and hold or trade Bitcoin or other cryptocurrencies. Although you may be interested in this type of IRA account simply to purchase Bitcoin or other cryptocurrencies, the fact is that there are numerous asset classes that can be purchased or traded in this type of account.

A self-directed IRA differs from a traditional IRA account in that it provides access to more investment choices. A traditional IRA account typically allows the purchase of equities, equity instruments and fixed income products. A self-directed IRA, on the other hand, allows for the purchase of other asset classes including real estate, managed futures, precious metals and cryptocurrencies.

Can Any Financial Institution Act as a Cryptocurrency Custodian?

No. A self-directed IRA account must be held by an IRA approved bank, trust company or financial institution. The self-directed IRA custodian has various duties including record keeping, reporting and purchase and sale of investments. According to Zacks.com, the custodian has other key responsibilities as well. A custodian is not responsible, however, for providing investment due diligence (outside of eligibility) and also makes no representations regarding investment or account performance.

Self-directed IRA account custodians can be compared on several key factors, including fees and costs, investment options, customer reviews and more. We utilize Kingdom Trust as our approved IRA custodian.

How Much Can I Invest in a Cryptocurrency IRA?

The IRS provides very specific guidelines for investing in a self-directed IRA account. For tax years 2015, 2016, 2017 and 2018, the maximum contribution to all of your traditional and Roth IRA accounts cannot exceed:

  • $5500 or $6500 if age 50 or over.
  • Your taxable compensation for the year if less than the above dollar amounts.

If you are looking to contribute to a Roth IRA, the same general contribution limits may apply, but may be limited based on income and filing status. You can visit the IRS contribution limits section for more information and guidance.

Are Cryptocurrency IRA Contributions Tax Deductible?

Contributions made to a cryptocurrency IRA may be tax deductible. Such deductions may be limited, however, based on whether you or your spouse has a retirement plan at work and if your income exceeds certain levels. Roth IRA contributions are not tax deductible. For more information, visit the IRA deduction limits section of the IRS website.

Why Might a Cryptocurrency IRA be the Ideal Choice for Investing in Cryptocurrencies?

If you are considering an investment in cryptocurrencies, it is important to not only consider your objectives, but to also consider the market as a whole. Cryptocurrencies have been gaining in popularity and acceptance, yet these digital currencies are still in the very early stages of becoming more mainstream.

The growth potential for cryptocurrencies is significant, but like other new markets that growth may take time. For those looking to participate in any growth, patience may be key. The cryptocurrency market is likely to continue to evolve in the years and decades ahead, and investors may need to be willing to sit on such investments for an extended period of time. Looking at the bigger picture, this could make an IRA the ideal way to invest in these markets.

Do I Still Maintain Control Over the Account?

Yes. You decide where and how to invest your funds. You can choose a single cryptocurrency to invest in, or diversify your holdings by purchasing several different cryptocurrencies. The account custodian will execute your instructions based on a letter of direction provided that the instructions are compliant with applicable rules and regulations.

And your holdings do not have to be limited to strictly cryptocurrencies. You can also invest in a wide variety of other products as well, including stocks, bonds, real estate, managed futures, precious metals and more.

A cryptocurrency IRA account may provide numerous advantages for the long-term investor and should be considered as part of an overall investment strategy. It is important, however, to determine the correct account type based on your financial circumstances. Traditional IRAs and Roth IRAs have some significant differences, and it is imperative that investors understand those differences before choosing an account type.

For those that are self-employed, a SEP IRA may be a great way to take advantage of the power of an IRA account. A SEP account has different rules and guidelines, and like other IRA account types it is critical that these guidelines are strictly adhered to. More information on a SEP IRA can be found at the IRS website under the SEP Plan FAQs section.

Whatever account type you choose, the potential advantages of an IRA can help you achieve your financial goals. Due to the numerous rules and guidelines that must be followed to maintain the accounts tax-deferred status and to avoid costly penalties, you should consult your tax professional prior to setting up an account.   

Global financial markets continue to grow and evolve. Investors today have numerous ways to add diversification to their portfolio, and can also take advantage of new opportunities as they arise. Adding cryptocurrencies to your portfolio may provide not only tremendous growth potential, but also added diversification away from more traditional asset classes such as stocks and bonds. Cryptocurrencies may show little to no correlation to these other asset classes, and may potentially offer a hedge against such issues as inflation and declining paper currency values.

Although cryptocurrencies have not been around very long, they could potentially become a preferred payment method and significant store of value in the years and decades ahead. Given this market’s potential for growth, more and more investors are likely to want to get involved, and an IRA account may be the best way to try to maximize investments in this exciting asset class.