What Is a Cryptocurrency IRA?

When most investors think of IRA investments, they think of conventional financial assets such as stocks, bonds, and mutual funds. But Self-Directed IRAs unlock the door not only to alternative investments such as real estate and precious metals, but also cryptocurrency.

When the IRS declared virtual currency as property, Cryptocurrency IRAs became possible and are simply Self-Directed IRAs that are invested in cryptocurrency. They can be Traditional, Roth or SEP, just like any other IRA, and must adhere to all the same rules regarding funding, contributions and distributions.

The challenge for investors is that very few custodians have the capability and safeguards in place to track and store digital assets on behalf of their account holders.  But together, Coin IRA and Equity Trust Company, our preferred IRS-approved custodian, bring a wealth of Self-Directed IRA experience and capability to account holders wanting to invest their retirement funds into this new asset class, ensuring that the process is easy, efficient, and compliant from start to finish, and that our account holders’ digital currency assets are stored with best-in-class security and protection.

TRADITIONAL CRYPTOCURRENCY IRA

If you choose to open a “Traditional” Cryptocurrency IRA, you can fund it with a transfer from an existing IRA of the same type or rollover funds from an eligible, pre-tax retirement account, such as a 401k.  All the same contribution limits and tax treatment apply to a Traditional Cryptocurrency IRA as to a conventional Traditional IRA.

ROTH CRYPTOCURRENCY IRA

If you choose to open a “Roth” Cryptocurrency IRA, you can fund it with a transfer from an existing Roth IRA or any other eligible post-tax retirement account.  Again, all the same contribution limits and tax treatment apply to a Roth Cryptocurrency IRA as to a conventional Roth IRA.

SEP CRYPTOCURRENCY IRA

A Simplified Employee Pension (SEP) is an IRA that an employer or self-employed person is eligible to establish.  It is a pre-tax account similar to a Traditional IRA, with higher contribution limits than a Traditional or Roth.  When thinking about a SEP Cryptocurrency IRA, the guidance of your tax advisor is essential to ensure that the strict rules that apply are being followed.

ASSET CUSTODY

As with any other IRA, the IRS requires that your assets be held by a custodian. That custodian is responsible for safeguarding your assets, tracking and reporting IRA activities such as contributions, rollovers, transfers, and distributions, and reporting any IRA transactions to the IRS.  In the case of a Cryptocurrency IRA, Equity Trust will safely and securely custody your assets as required by law.

Remember, trades within your Cryptocurrency IRA are not taxable events. Only withdrawals from your account called distributions may be taxable, so when it’s time to take distributions, it’s always best to consult your tax advisor for reliable information on the requirements of the type of retirement account you hold.

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