We've been inundated with requests lately for Crypto IRA and 401K investments. Bitcoin IRA and Bitcoin 401K requests have displaced real estate IRA/401k as our most in-demand alternative investment. The great news is that our Checkbook IRA and Checkbook 401(k) structures can be used for real estate and virtual currency, as well as any other IRS allowed investment. These structures are are very cost-effective, have no asset-based fees, and are inexpensive to maintain.
Following are some excerpts from a Q and A we did about Cryptocurrency IRAs and Cryptocurrency 401(k) Plans. Some of the questions are elementary to most of us on Steemit, but crypto's recent explosive growth is attracting many who are just wising up to it's power.
A self-directed IRA, or SDIRA, is an IRA that can be invested in assets that are not available on brokerage platforms. The most common SDIRA investment - historically - has been real estate, but an SDIRA can hold crypto currency, private loans, private stock, tax liens, tax deeds, mortgage notes, livestock, mineral rights and nearly anything else.
Section 408 of Tax Code disallows only life insurance and collectibles for IRAs; everything else is allowed. In addition, S-corp regulations don’t allow IRA shareholders for small business corporations. Self-directed IRAs are held by specialized trust companies that are qualified to administer such accounts.
A popular structure has the SDIRA make an investment in a specially formed IRA-LLC over which you have management control. This IRA-LLC will have a business checking account which you control as IRA-LLC manager. Hence, the moniker checkbook control IRA.
A Checkbook Control Solo 401K Plan is a personal qualified retirement for owner-only businesses. A completely self-directed Solo K, or Checkbook 401k, combines the simplicity of IRAs with the flexibility of Qualified Plans.
A Checkbook 401K does not require a trust company custodian. The business owner has direct control of the plan funds at all times.
Self-Directed IRA-LLCs and Solo 401k Plans can buy and sell Bitcoin and other cryptocurrency the same way they can invest in real estate, private equity, tax liens, stocks, and mutual funds. The process for investing in Bitcoin, Ethereum, Litecoin, Zcash, Dash, Ripple XRP, Monero and all other cryptocurrencies is the same as when purchasing them outside of retirement accounts. Ownership of the asset should vest in your IRA-LLC or Solo 401(k) Trust and not in your personal name.
Yes, Bitcoin, Ethereum, and all other cryptocurrencies are permissible investments for IRAs and 401(k)s. Section 408 of the IRC enumerates the non-permissible assets for retirement accounts and virtual currency is not among those. The only assets not available to IRAs are collectibles, life insurance, and S-corp stock. Solo 401k plans can purchase life insurance, but not collectibles.
The classification of virtual currencies for tax purposes has many implications. Currently, the IRS treats cryptocurrency as property, not money (currency). This treatment requires recognition of taxable income or gain whenever cryptocurrency is sold, making tax-advantaged retirement accounts an attractive way to buy and sell Bitcoin. Roth IRAs and Roth Solo 401k plans are particularly attractive for Bitcoin investments, being that the potential gains have been – and are expected to be – astronomical. See IRS Notice 2014-21 for details.
Buying Bitcoin requires a Bitcoin Wallet to hold Bitcoin and access to a Bitcoin Exchange or other point at which cryptocurrency can bought or sold.
A Bitcoin Wallet holds the private keys, or secret codes, that enable Bitcoin transactions. Bitcoin Wallets can be either Hardware Wallets (“Cold Storage”), Hot Wallets (“Web Wallets”), or Paper Wallets. Hardware Wallets are purchased for a fee, but are far more secure.
Bitcoin can be purchased with cash, debit cards, at Bitcoin ATMs, or with bank transfers. Due to the Prohibited Transaction Rules of IRC 4975 you should not have any credit cards for your IRA-LLC, Solo 401k, or Solo 401k LLC, so credit card Bitcoin purchases are not an option for your retirement account.
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). Your SSN should not be used for the establishment of the account. 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.
Use checkbook control retirement accounts to invest in alternative and traditional assets, including cryptocurrency, real estate, stocks, tax liens, litigation finance, and mutual funds. Individual 401k plans and IRA-LLCs are the most efficient and cost-effective way to control your investments.
Following are some links that expand on key topics listed above:
https://www.401kcheckbook.com/checkbook-control-retirement-plans/checkbook-control-ira/
https://www.401kcheckbook.com/checkbook-control-retirement-plans/checkbook-control-401k/
https://www.401kcheckbook.com/bitcoin-in-self-directed-retirement-accounts/
Full disclosure: As is evident, I'm associated with https://www.401kcheckbook.com/ and ReSure. This post, however, should be very informative and very helpful to anyone considering investing in Bitcoin IRA or Bitcoin 401K. There's a dearth of comprehensive guidelines for cost-effective crypto currency retirement account investing and this post can serve as a guide for those of us that want to pursue such a route.
Questions and comments are welcome!
