IRA Financial Trust Company has helped hundreds of clients use their retirement funds to invest in cryptocurrencies, such as Bitcoin and Ethereum, with the use of a Bitcoin IRA, also known as a Self-Directed IRA for Bitcoin.
IRA Financial Trust is proud to offer Checkbook IRA custodial services along with its full service IRA administration services all for one low price without any transaction or asset valuation fees. IRA Financial Trust Company is one of the few full-service IRA custodians who specialize in establishing Checkbook Control IRA LLC accounts, which allow for Bitcoin and other cryptocurrency type investments. With IRA Financial Trust, buy, hold, or sell cryptocurrencies from a local LLC bank account and have total control over your cryptocurrency investment.
What is Cryptocurrency?
For a growing number of investors, cryptocurrency is not only the future of money, but also an attractive and potentially profitable investment asset, though highly risky and volatile. Bitcoin has become the public’s most visible and popular cryptocurrency and it is also among the oldest, having first emerged in 2009. Over one year, the market capitalization for Bitcoin has increased enormously, from around $7.16 billion in May 2016 to $27.9 billion today. As the price of Bitcoin has risen over the last year or so has the confidence among investors, including retirement account investors.
The process of buying cryptocurrency is still somewhat unclear for a lot of people. It’s not a stock or a traditional investment. For most people in the U.S., Coinbase would be the easiest option to buy cryptocurrency, such as Bitcoin, Ethereum, or Litecoin. After verifying the account, the investor can add a number of payment methods including credit or debit cards, U.S. bank accounts, or even wire transfers of funds. Cryptocurrency transactions are not anonymous and the identify of the currency owner can be traced back to a real-world identity.
As a cryptocurrency, Bitcoin is generated through the process of “mining” – essentially using your computer’s processing power to solve complex algorithms called “blocks.” One can buy and sell Bitcoin on an exchange, much like a physical currency exchange, converting wealth from Bitcoin to US dollars to other national currencies, back to dollars or Bitcoin. And that’s how money is made.
Tax-Treatment of Buying Cryptocurrency with Non-Retirement Funds
Even though Bitcoin is labeled as a “cryptocurrency”, from a federal income tax standpoint, Bitcoin and other cryptocurrency are not considered a “currency.” On March 25, 2014, the IRS issued Notice 2014-21, which for the first time set forth the IRS position on the taxation of virtual currencies, such as Bitcoin. According to the IRS Notice, “Virtual currency is treated as property for U.S. federal tax purposes.” The Notice further stated “general tax principles that apply to property transactions apply to transactions using virtual currency.” In other words, the IRS is treating the income or gains from the sale of a virtual currency, such as Bitcoin, as a capital asset, subject to either short-term (ordinary income tax rates) or long term capital gains tax rates, if the asset is held greater than twelve months (15% or 20% tax rates based on income). By treating Bitcoin and other virtual currencies as property and not currency, the IRS is imposing extensive record-keeping rules – and significant taxes – on its use.
Advantages of Using a Self-Directed IRA LLC to Invest in Cryptocurrency
The IRS tax treatment of virtual currency has created a favorable tax environment for retirement account investors. In general, when a retirement account generates income or gains from the purchase and sale of a capital asset, such as stocks, mutual funds, real estate, etc., irrespective of whether the gain was short-term (held less than twelve months) or long-term (held greater than twelve months), the retirement account does not pay any tax on the transaction and any tax would be deferred to the future when the retirement account holder taxes a distribution (in the case of a Roth IRA or Roth 401(k) plan no tax would be due if the distribution is qualified). Hence, using retirement funds to invest in cryptocurrencies, such as Bitcoin, could allow the investor to defer or even eliminate, in the case of a Roth, any tax due from the investment. Note – retirement account investors interested in mining Bitcoin versus trading, could become subject to the Unrelated Business Taxable Income tax rules if the “mining” constituted a trade or business.
How to Use a Self-Directed IRA LLC to Invest in Cryptocurrency
Working with IRA Financial Trust to purchase cryptocurrencies, such as Bitcoin, Ethereum, Ethereum Classic, or Litecoins with a self-directed IRA is quick and easy.
1. Establish a Self-Directed Bitcoin IRA account with IRA Financial Trust Company.
2. Rollover of retirement funds, cash or in-kind, tax-free to new Self-Directed Bitcoin IRA account.
3. The IRA assets will then be transferred to the LLC tax-free in exchange for 100% interest in the newly established IRA LLC.
4. You, as manager of the LLC, will open a bank account for the LLC at any local bank. IRA Financial will draft LLC Operating Agreement identifying you as manager of the LLC and the IRA as the sole member.
5. You, as manager of the LLC, will then have checkbook control over all the assets/funds in the Bitcoin IRA LLC to make the cryptocurrency investment.
6. Since the LLC is owned 100% by an IRA, it will be treated as a disregarded entity for tax purposes. No Federal income tax return is required to be filed and all income and gains from the cryptocurrency investment will flow back to the IRA without tax.
Cryptocurrency investments, such as Bitcoin, are risky and highly volatile. Any investor interested in learning more about Bitcoin should do their diligence and proceed with caution.
IRA Financial Trust Company was founded by tax attorneys who worked at some of the largest law form in the world, including White & Case LLP and Dewey and LeBoeuf LLP, and have helped over 12,000 clients self-direct their retirement funds through their ownership in the IRA Financial Group LLC.
IRA Financial Trust Company is a regulated non-banking financial institution that is made up of retirement tax specialists committed to helping you make Self-Directed retirement investments quickly while minimizing annual fees. IRA Financial Trust is a non-banking IRA custodian.
The IRA Financial Trust Advantage
- One low annual fee
- No transaction or annual account asset fees
- IRA Financial Group has helped over 12,000 clients establish Self-Directed retirement accounts totaling nearly 3 billion dollars since 2010
- Work with Self-Directed IRA experts
- Experience our Continuing Retirement Education (CRE) Platform
- Invest in what you know and understand from the comfort of a local bank
- Specializing in Checkbook Control Self-Directed IRAs