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NFTs and Your IRA – Episode 279

NFTs and Your IRA
3 Minute Read

In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses non-fungible tokens, or NFTs, how they work and if you can own them in your retirement account.

NFTs, non-fungible tokens, have the been the biggest craze of 2021. By definition, “NFTs transform digital works of art and other collectibles into one-of-a-kind, verifiable assets that are easy to trade on the blockchain.” Essentially, it’s a digital collectible. Instead of buying a piece of art or a baseball card, you buy a digital representation of them. Of course, NFTs go beyond what you can physically possess. A video of a slam dunk, meme or tweet can only be held on the digital space. Millions of dollars are being invested in NFTs. However, can you use an IRA to invest in them? Adam Bergman explains in this episode of Adam Talks.

NFTs Explained

You have probably heard of Bitcoin and other cryptocurrencies. NFTs are based on the technology those assets are based upon, called Blockchain. The blockchain is basically a digital ledger that keeps track of a particular crypto. This allows them to be secure and traced in case of a dispute. NFTs use the same technology, where you can own a unique asset. Essentially, you have the providence for your NFT. While a physical painting can certainly be bought in sold, you have the digital rights to it.

As with many collectibles, owning the original is better than owning a reproduction. When you purchase an NFT, you are getting something that is 1/1. This means, you are the only one who owns this particular collectible. Sports cards, among other items, become more expensive the rarer they are. Owning an autographed LeBron James card that was only produced 10 times, is infinitely more valuable than owning a card that has millions in circulation.

As we’ve seen with meteoric rise in the price of Bitcoin over the last year or so, many experts think NFTs are the wave of the future. Obviously, it’s not for everyone. Beeple, a popular artist, recently sold a piece for $69 million. Twitter CEO, Jack Dorsey, sold the first ever tweet as an NFT for over $2.9 million. Even Time Magazine is offering covers of their magazine as an NFT. There is something for everyone out there, if you are interested in the prestige of owning an NFT.

Investing with an IRA

When it comes to using an IRA to invest, you must heed the IRS code. Investing in something that is prohibited will lead to stiff penalties. You can invest in alternative assets. These include real estate, gold, private businesses and even Bitcoin. However, the Code states you cannot invest in a collectible. But what is a collectible as determined by the IRS?

These include stamps, antiques, alcoholic beverages, rugs, art, gems and coins. Further included is “any other tangible personal property specified by the Secretary for purposes of this subsection.” This is where the grey area lies with NFTs. We know they are not tangible because they cannot be touched since they are digital. However, we also know that they are technically considered collectibles. So can you use a Self-Directed IRA to invest in an NFT?

If you follow Adam Bergman and IRA Financial, we stress the importance of diversifying your retirement holdings. Bitcoin and other cryptos (digital currency) are deemed assets, and can be invested in with retirement funds. If you got in the game early enough, you’ve made a lot of money with crypto investments. NFTs are a whole new breed though. While we are not telling you whether you should invest in them or not, we will say that you shouldn’t use an IRA or 401(k) to invest in NFTs.

Until there is further guidance from the IRS, it’s best to avoid investing in any collectible, tangible or not, with retirement funds. By all means, if you wish to invest in NFTs, use personal funds. However, Mr. Bergman feels it’s very risky if you use your retirement plan to invest in them. Before investing, you should speak with a financial advisor, as this advice is for educational purposes only.

Conclusion

While NFTs are an exciting new asset class, there is too much uncertainty about them as a whole. Until the IRS makes a ruling, as they did for cryptos back in 2014, it’s wise to keep them out of your retirement portfolio. Of course, we will keep you updated with any new information the IRS provides!

Listen to the podcast, as Adam explains everything you ever needed to know about NFTs and how retirement investing works. As always, thanks for listening to Adam Talks. Be sure to check out our SoundCloud page for tons more material discussing new investments, self-directing your retirement and tax saving tips.

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