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Investing in Bitcoin with a Self-Directed IRA

Investing in Bitcoin

Bitcoin has been one of the best performing assets during the COVID-19 pandemic.  It has historically been a very volatile asset class, but it has been surprising stable during 2020. As a result, there has been a significant increase in demand from IRA investors who are seeking to gain exposure to an emerging asset class with the goal of locking in all the huge potential gains. Investing in Bitcoin with a Self-Directed IRA or Roth IRA offers the most tax advantages.

IRA Financial is the only IRA custodian that allows its clients to buy Bitcoin directly in an IRA through Gemini Exchange, a leading and regulated crypto exchange, without the need for a costly third-party broker or an LLC.  Before we get into the process for how to purchase Bitcoin or other cryptocurrencies securely, cost effectively, and efficiently through the IRA Financial & Gemini’s partnership, it is important to understand some of the technology behind Bitcoin and its tax treatment.

What is Bitcoin?

Bitcoin is a form of digital currency created in January 2009. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous developer Satoshi Nakamoto, whose true identity has yet to be verified.

There are no physical “bitcoins,” only balances kept on a public ledger in the cloud, (blockchain) that – along with all Bitcoin transactions – is verified by a massive amount of computing power – known as mining. Unlike fiat currency, Bitcoin is created, distributed, traded and stored with the use of a decentralized ledger system known as blockchain, which is the exciting technology driving much of the value associated with Bitcoin and cryptocurrencies.


According to IRA Notice 2014-21, cryptocurrencies, such as Bitcoin, are treated as property, like stock.  Like stocks, all gains associated from a cryptocurrency investment held less than 12 months is treated as short-term capital gains and taxed at ordinary income tax rates. Whereas, if the cryptocurrency is held longer than 12 months, all gains are treated as capital gains and subject to a 15% tax rate. In order to determine if the gain is to be treated as short-term or long-term capital gains, the investor must calculate basis, holding period, and sales or exchange value to determine gains or loss.  This can be a complex process with cryptocurrency, especially for an investor with a high number of annual transactions.  However, if an investor uses retirement funds to purchase Bitcoin, all gains would be tax deferred or tax-free in the case of a Roth.

Why Buy Bitcoin?

Investing in Bitcoin should be considered for many different reasons:

  • Emerging asset class
    • New technology with great upside – but risky and volatile
    • Scarcity, Divisibility, Utility, and Transferability
    • When Bitcoin was launched in 2009, its developer(s) stipulated in the protocol that the supply of tokens would be capped at 21 million
    • 21 million Bitcoin is vastly smaller than the circulation of most fiat currencies in the world. Fortunately, Bitcoin is divisible up to 8 decimal points.
    • One of the biggest selling points of Bitcoin has been its use of blockchain technology

How to Buy Bitcoin in your IRA

Investing in Cryptos with IRA Financial

The Best Way to Buy with an IRA

  • IRA Financial is the only provider that allows its clients to buy Bitcoin directly in an IRA through Gemini Exchange, without the need for a broker or LLC
    • Gemini is a regulated trust company and offers its clients insurance against fraud
    • Using a third-party broker is expensive and you lose control over the bitcoins.  Plus, third party crypto brokers are not licensed or regulated.
    • Using an LLC is a good option for buying less popular cryptos, but does have set-up costs
    • IRA Financial & Gemini partnered to give you the best way to buy Bitcoin in an IRA:
      • For low annual fees – Just $1 in commission for trades under $10,000
      • Use your own wallet – total control or hold on Gemini exchange
      • Also – no IRS or bank account linking issues since the crypto account is opened in the name of an IRA
      • We handle all IRS administration
    • This is truly the best and smartest way to buy Bitcoin
    • Best of all – all gains are tax-deferred or tax-free in the case of a Roth

Investing in Bitcoin is one way to hedge against market volatility. Yes, cryptos are highly volatile as well, but the potential for gain is immense. It might be time to get some of your money into this brand new asset class before it’s too late. Speak with your financial advisor to see if it makes sense for you!

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