Last Updated on January 30, 2020
Cryptocurrency investors will be able to use the Rollover as Business Start-up (ROBS) to fund their mining activities by using their retirement funds free of tax and penalty.
What is Cryptocurrency Mining?
Cryptocurrency mining, also referred to as cryptomining, is the process in which transactions of various crypto are verified and then added to the block chain digital ledger. Anyone can participate in mining if they have access to the internet and suitable hardware.
Simply put, the process involves compiling recent cryptocurrency transactions into blocks to solve a mathematical solution. The first crypto miner to solve the mathematical solution will be allowed to add the next block to the block chain and gain the rewards. In general, rewards are new releases of various cryptocurrency coins, such as Bitcoin.
Mining has become very attractive to entrepreneurs who wish to use their retirement funds to fund their crypto mining business tax and penalty-free with the ROBS structure.
Rollover Business Start-up (ROBS) Arrangement
What is the ROBS solution?
The Rollover as Business Start-up solution is a process by which funds from eligible retirement accounts, such as a 401(k) or IRA are used to invest in a new or existing business/franchise. It typically involves rolling over retirement funds into a newly established 401(k) plan, which a start-up C corporation business must sponsor.
The rollover 401(k) plan funds are then invested in the stock of the new C corporation and deposited in the C corporation bank to be used solely for business purposes.
The legality behind the ROBS structure is based on an exception to the IRS prohibited transaction rules known as qualifying employer securities.
C Corporation Tax Rate Reduction
The Rollover as Business Start-up solution became a very tax-efficient strategy for entrepreneurs, such as crypto investors, to use retirement funds to purchase a business or franchise without incurring tax or penalty from the distribution. Under the 2017 Trump tax plan (Tax Cut and Jobs ACT), the C Corporation tax rate reduced to 21%, a significant difference from its 35% maximum corporate tax rate prior to 2017.
Cypto investors now have a very tax-efficient means of funding their mining activities. Cryptocurrency has made somewhat of a comeback in 2019, despite being a risky and highly volatile investment. Crypto investors are aware of the risks behind such investments, but before employing the ROBS solution, it is important to note that the ROBS solution also comes with its share of risks.
Stay abreast of the ongoing legal requirements and learn how to stay IRS compliant when employing the ROBS solution. The Rollover as Business Start-up solution is not a permanent arrangement and there are ways that you can exit the structure in the event that you sell your business for a profit or the business fails to get off the ground.
IRA Financial has the experience to provide guidance on how to correctly navigate the structure and remain compliant to the IRS and ERISA rules and procedures. Contact a specialist at IRA Financial directly at 800-472-0646.