Bitcoin is an example of digital money that enables secure transactions on the internet. You don’t need a financial institution to buy Bitcoin. Every transaction involving Bitcoin is tracked on the blockchain which is like a bank’s ledger. The Bitcoin blockchain is distributed across the entire network and no company or government has control. Any individual can join the network. There will only ever be 21 million Bitcoin which is digital money that cannot be manipulated. You don’t have to buy an entire Bitcoin, you can buy a fraction of one.
You want a self-directed IRA cryptocurrency in your retirement portfolio. Doing this is different from other self-directed investments. Investors may buy Bitcoin to hold for the same reasons they might buy gold or other precious metals. These transactions are permitted investments within a self-directed IRA.
How to get started
With cryptocurrencies, if you want to buy or trade digital assets, you must do it through a digital wallet, an app that is linked to a checking account. You must create an account on a trading exchange or purchase assets through brokers. You can also seek help from Viva Capital to start your first ever crypto IRA account.
Individuals who want to hold cryptocurrency in a retirement account must make investments through a limited liability company, (LLC).
- You need to establish and fund a self-directed IRA with a custodian of these retirement plans.
- Form and register an LLC, which will be 100 percent owned by the IRA and will carry the same tax advantage status as the IRA. The income and expenses related to the assets will move through the IRA LLC as required by the Internal Revenue Service. Cryptocurrency is considered property for taxation by the IRS. However, because the assets are owned by a retirement account, gains have tax advantages.
- Using funds from the IRA, the LLC opens a checking account, also known as a checkbook IRA. This checkbook puts the owner in full control of the transaction which is simplified by writing a check or wiring funds. The funds in the IRA LLC’s business checking account are for the sole purpose of investing in the digital assets or any alternative assets allowed through self-direction.
- Open an account on a cryptocurrency exchange in the name and tax number of the IRA LLC. In addition to being traded on exchange platforms, digital assets may also be purchased through brokers or by investing in a fund that holds various digital currencies through private placement. The IRA purchases shares or directly invests as a limited partner.
Be careful with self-directed investments. As an account holder, you should conduct full due diligence about any cryptocurrency you want to include in a retirement account. While investments in digital currencies can be lucrative, cryptocurrencies are volatile. Their values can fluctuate, and the market is not regulated. You should do some research and work with an experienced self-directed IRA administrator to open and fund your account correctly.
Bitcoin was developed by Satoshi Nakamoto, a pseudonymous person or team who described the technology in a 2008 white paper. The concept is simple. Bitcoin is digital money to be used for secure peer-to-peer transactions on the internet.