What is Cryptocurrency and How Can You Buy it?
Many investors, including those who wish to use a Bitcoin IRA to invest, cryptocurrency is more than the future of money. For these individuals, it’s a potentially profitable investment asset, although highly risky.
Bitcoin is quickly becoming the public’s most well-known form of cryptocurrency. It’s also among the oldest, emerging in 2009. In just one year, the market capitalization for Bitcoin increased from $7.16 billion in May 2016 to $27.9 billion at the time of writing this article. Suffice it to say, investors are becoming more confident in Bitcoin investments. This includes retirement account investors.
The process for buying cryptocurrency is still unclear to most. The reason is, it’s not a stock or traditional investment. For most people in the U.S., Coinbase is the easiest option to buy cryptocurrency. This includes the ever popular Bitcoins, as well as Ethereum and Litecoin. An investor can verify the account and add a number of payment methods. This includes credit or debit cards, U.S. bank accounts and also wire transfers of funds.
Cryptocurrency transactions are not anonymous. The identity of the currency owner is traceable back to a real-world identity.
You can buy and sell Bitcoin on an exchange, much like a physical currency exchange. This is very much like physical currency exchange. You convert wealth from Bitcoin to U.S. dollars and other national currencies, back to dollars or Bitcoin. Essentially, this is how you make money.
Tax-Treatment of Buying Cryptocurrency with Non-Retirement Funds
Although Bitcoin is a “cryptocurrency” from a federal income tax standpoint, Bitcoins and other cryptocurrency are not seen as “currency.” This came to be on March 24, 2014, when the IRS came out with Notice 2014-21. This was the first time the IRS set a position on the taxation of virtual currencies, such as Bitcoins. According to that notice:
“Virtual currency is treated as property for U.S. federal tax purposes.”
It further goes on to say:
“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 Bitcoins, as a capital asset. This makes it subject to either short-term (ordinary income tax rates) or long term capital gain tax rates. This is if the asset is in possession more than twelve months (15% or 20% tax rates based on income).
By treating Bitcoins 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 Bitcoin IRA to Invest in Cryptocurrency
The IRS tax treatment of virtual currency creates a favorable tax environment for retirement account investors. Usually, when a retirement account generates income/gains from the purchase and sale of a capital asset, the retirement account doesn’t pay any tax on the transaction. The tax would be deferred to the future when the retirement account holders takes a distribution. This applies if the gain was short-term or long-term.
Therefore, using retirement funds to invest in cryptocurrencies can allow investors to defer or eliminate any tax due from investment – such as the case of a Roth.
How to Use a Self-Directed IRA LLC to Invest in Cryptocurrency?
When you work with IRA Financial Group to purchase cryptocurrencies, our team will make the process quick and easy.
Our team will help you establish a Self-Directed IRA account with IRA Financial Group.
All of your retirement funds or cash rollover to a new Self-Directed IRA account – tax free.
Your IRA assets will transfer to the LLC tax-free in exchange for 100% in exchange for 100% interest in the new IRA LLC.
You, as manager of the LLC, will open a bank account for the LLC at any local bank. IRA Financial Group will draft an LLC Operating Agreement identifying you as manager of the LLC and the IRA as the sole member.
You, as manager of the LLC, will then have checkbook control over all the assets/funds in the IRA LLC to make the cryptocurrency investment.
Since the IRA owns the LCC completely, it will be treated as a disregarded entity. This is for tax purposes. There’s no requirement for Federal income tax, and all income/gains from the investment flow back to the IRA.
Cryptocurrency investments, such as Bitcoins, are risky and highly volatile. Any investor who has interest in learning more about Bitcoins must do their research and proceed with caution.
At the IRA Financial Group, our team will help you with the entire set-up of your Self-Directed IRA LLC “Checkbook Control” structure. We can handle it by phone, email, fax or mail. The entire process typically takes between 7-14 days to complete. The time-frame is largely dependent on the state of formation and the custodian who has possession of your retirement funds.
Our IRA experts and tax professionals are on site and can reduce the set-up time and cost. More importantly, each of our clients receive a tax professional and CPA to help esatablish their Self-Directed IRA LLC “Checkbook Control” structure.
IRA Financial Group’s Private Key Control Self-Directed IRA LLC
At IRA Financial Group, we have helped over a thousand clients invest in cryptocurrencies just in the last year. For more information on cryptocurrencies, find our published articles on Forbes.
Our Private Key Self-Directed IRA LLC solution will allow you to have total control over your cryptos through an exchance, like Coinbase, or a digital or hard wallet that you hold and control. As manager of the LLC, you have total control over your crypto wallet. You can also be the sole person in control of the wallet’s private key. Some IRA custodians require that you use their brokers to buy and sell your cryptos and they arrange for the safekeeping of the cryptocurrencies, including holding the private key and the cryptocurrencies themselves.
The first thing you hear about when investing in cryptocurrencies is to never give away your private key as it is like giving away your ATM pin code or keys to your home. Nevertheless, some IRA custodians are requiring IRA investors to do so. IRA Financial Group believes there is a better and safer way to allow its clients to invest in cryptocurrencies – the Private Key Control Self-Directed IRA LLC.
Note: Whatever platform you decide to use if investing retirement funds into cryptocurrencies, it is vital that Investors understand the financial risks. Cryptocurrency IRA investors must have the financial stability to bear the risks of such an investment, and its potential total loss. We always advise that you proceed with caution and do your research.
Did you know?
You can use your Self-Directed Bitcoin IRA to buy Bitcoin and other cryptocurrency and generate tax-deferred gains or tax-free gains, in the case of a Roth IRA.