Cryptocurrency in an IRA

Cryptocurrency is a digital form of tokens or “coins” that can be exchanged for goods and services. Many companies issue their own digital currency that can be traded specifically for their goods or services. Cryptocurrency works using blockchain technology. Blockchain is a highly secure technology that manages and records crypto transactions. There are many kinds of cryptocurrency available, more than 6,700 in fact. You can invest in cryptocurrency in a self directed IRA. When you do so, your profits go directly to the IRA tax-free.

The IRS considers cryptocurrency property. They tax cryptocurrency like stocks and bonds. That’s why IRA holders need a custodian to manage their IRA.

Why Invest in Cryptocurrency?

Cryptocurrency in an IRA

Many see crypto as the currency of the future. Some expect the value of digital currencies to become highly valuable. And the blockchain technology behind crypto has transformed digital security. Cryptocurrency is self-regulated, ensuring stability, preventing double-spending, and creating a long life span. Crypto trades 24/7.

When you invest in digital currency with an IRA, the gains grow with tax advantages. If you invest with a Traditional IRA, your gains are tax-deferred until you take a distribution. In a Roth IRA, gains grow tax-free.

How to Invest In Cryptocurrency in a Self Directed IRA

Option 1: Invest Directly With Your IRA

You can set up a trading profile in your IRA’s name. As long as the trading platform accepts account deposits from Midland, you can use your IRA to invest in crypto.

Option 2: Set Up a Checkbook IRA

You can set up a single-member LLC in the name of your IRA. This structure is often known as a Checkbook IRA. With an LLC, you can direct investments in any crypto platform you choose. LLCs are an easy way to invest in crypto. They allow you to transfer money to and from the trading account. Trade crypto 24/7 with this investment structure. Please note that it has to be a newly formed entity owned solely by your IRA.

Process for Investing in Digital Currency in an IRA

STEP 1

Open an Account

Open a Midland account.

STEP 2

Fund the Account

Fund the account via transfer, rollover, or contribution.

STEP 3

Set Up an LLC (Optional)

If you choose to open a Single-Member LLC, you will need to take this step.

STEP 4

Choose a Trading Platform

Ensure the platform you choose can title the trading account in your IRA’s or LLC’s name.

STEP 5

Make the Investment

Lastly, invest in your desired cryptocurrency through your trading platform.

Rules & Things to Note With Crypto Investments in an IRA

  • You cannot buy cryptocurrency personally and sell it to your IRA.
  • The trading platform’s procedures must meet IRS rules and regulations.
  • The IRS considers cryptocurrency personal property for tax purposes.
  • When you hold digital currencies in an IRA, they receive the same tax-sheltered advantages as any other IRA investment.
  • You can store cryptocurrency via cloud wallet or cold wallet (hard drive ledger). But, if you are investing in crypto with an IRA, a non-bank custodian must hold your cold wallet. Or, if you invest using the LLC method, you can store the cold wallet in a safe deposit box registered to the LLC. Midland Trust does not currently offer a cold storage option. Storing a hard drive at your home may be a prohibited transaction. This could risk penalties or fines, causing your IRA to lose its tax-advantaged status.

Be sure to consult with your financial advisor to decide if cryptocurrency in an IRA is the right strategy for your investment portfolio.