With bitcoin becoming increasingly popular, the number of people have started to place Bitcoin in IRA investment accounts.Doing so may be a great idea but it is very important that you do so properly. Because it is a relatively new concept, there is always a chance of accidentally being taken advantage of without even being aware of it. Hopefully, the following will help to avoid that.
Placing Bitcoin in IRA According to the IRS
The first issue of importance is that you should only play something in an investment account that is allowed by the IRS. You will be happy to know that it is now acceptable to place bitcoins into an IRA. In fact, the only things that are not allowed to be included in an ISA or collectables and life insurance, neither of which bitcoin comes under. However, it is also important to understand that the IRS has not yet provided truly clear guidance on the rules and regulations around bitcoin investments comma although they have been officially asked to provide this guidance.
Step 1 – Choosing the Right IRA
first thing you will notice is that if you get in touch with your current IRA custodian, it is likely that they will not be able to help you with a bitcoin purchase. While it may not be prohibited by the law, IRA is often limited to the investments that the custodian of your particular IRA offers. What this means is that you will have to switch to a self-directed IRA instead.
Step 2 – Creating a Wallet
Once you have found a self directed IRA that accept Bitcoin, you will have to create a wallet. Wallets are essentially virtual safe deposit boxes in which cryptocurrency will be held. it is sometimes possible to create a wallet in the name of your IRA, but some custodians will require you to start an LLC in which name your bitcoin wallet can be held. It is generally easier to simply do things directly rather than standard setting up an LLC, not in the least because you will save around 15% in various fees and charges.
Step 3 – Fund Your Wallet Using IRA Funds
You will have to fund your wallet and you must make sure that you use capital from your IRA only. It is not possible to use capital from other sources which has been unambiguously prohibited if you still continue it the tax problems you will experience as a result will be cataclysmic in nature. The reason for this is because of the exclusive nature of an IRA. Should you be able to fund it with other sources, you would essentially double tax advantage.
There is quite literally zero flexibility when it comes to this requirement. You may not even use a personal fund only to then return this to you using the funds in your IRA. The only way you can fund to your bitcoin wallet, therefore, is with money that has come directly from the IRA. This is true whether you use your own name or an LLC for your bitcoin IRA.
