Fee Nightmare when Using a Self-Directed IRA Broker to Purchase Cryptocurrencies

fee nightmare

One of the most popular reasons for investing in cryptocurrency is that it is viewed as a quick, secure, efficient, and very cost-effective way to move and store value. Cryptocurrencies are viewed as an emerging asset class because of the technology behind it, which is known as blockchain. However, you must be careful of certain brokers when using a Self-Directed IRA to invest. You don’t want to find yourself in a fee nightmare as described in the following.

Key Points
  • Bitcoin IRAs allow for tax-advantaged investing
  • Be wary of brokers when looking to invest in cryptocurrencies
  • Work with IRA Financial and Gemini Exchange to invest in Bitcoin with an IRA!

Investing in Crypto with a Self-Directed IRA

Crypto IRAs are becoming increasingly popular. Cryptocurrencies are viewed as an emerging asset. Many people want exposure to Cryptocurrencies to diversify their portfolio. In response, many companies are now offering Crypto IRAs.

There are several ways to purchase Cryptocurrencies with an IRA.  In every way, an IRA custodian, such as IRA Financial Trust, must custody the IRA and facilitate the investment on a regulated cryptocurrency exchange, such as Gemini. As a result, some Bitcoin IRA companies have popped up which are essentially third-party brokers.  They are not IRA custodians and are not licensed.  In fact, most are former gold traders and do not have a money transmitter license which is required to convert fiat into bitcoin or other cryptos.

On its surface, investing in cryptos with a Self-Directed IRA should be a very tax-efficient way to invest. However, if you are not sure of the process, the fees could turn that efficiency into a liability. IRAs allow for tax-free investing, meaning you do not pay taxes annually on your investments. Taxes are paid at the time of distribution in the case of a traditional account. Alternatively, taxes can be before making a contribution, known as a Roth IRA. Roth IRAs allow for tax-free distributions once you reach the age of 59 1/2 and the plan has been open for at least five years. Obviously, if there are excessive fees, the tax savings may completely nullified.

Related: How are Crypto IRAs Taxed?

Fee Nightmare Story

Over the years I have heard many horror stories about using a gold company or IRA broker to purchase Bitcoin or other cryptocurrencies because of the excessive fees.  Unfortunately, this story takes the cake and it is a painful example of why using a gold company or IRA broker to purchase Bitcoin is an expensive proposition. 

I just want to warn you – the story is quite upsetting.  Here are the facts.  A nice lady, recently divorced, wanted to invest in cryptocurrencies.  She contacted an IRA trust company who put her in touch with a Bitcoin broker at a digital IRA company/gold dealer.  The individual sought to invest around $330,000 in cryptocurrencies.  She was not a sophisticated investor and had never purchased cryptocurrency before.  She established a Self-Directed IRA account with a custodian, not IRA Financial Trust. The funds were then transferred to the Bitcoin IRA company.

The way this Bitcoin IRA company worked is that she would talk with a broker by phone and give a verbal confirmation to purchase the cryptocurrency.  She was never told about any of the commissions until she was about to approve the cryptocurrency purchases.  She mentioned that she went back and checked all of her email communications with the IRA broker and digital IRA company and there was no reference to a 12% commission fee. Below is a breakdown of the transaction:

Amount Funded$378,062.00
Total Fee %12%
Digital IRA Company %3%
IRA Broker Commission %9%
Broker Fee$34,074.18
Digital IRA Company Fee$11,358.06
Total Fees$45,432.24

In sum, this individual paid 12% in fees to purchase cryptocurrencies in her IRA.  Yes – I know – this is pretty much unbelievable.  Unfortunately, I have heard many similar stories over the years. While many companies want you to believe they are the best Crypto IRA companies, many lack a basic knowledge of tax law, and charge excessive fees.

Related: Coinbase IRA

Why Work with IRA Financial

IRA Financial has extensive knowledge pertaining to alternative investments, including cryptocurrencies. While Crypto IRAs are relatively new, IRA Financial was one of the first companies to offer this feature. Additionally, IRA Financial was founded by a leading tax attorney and ERISA professional. As a result, IRA Financial can help protect you against an audit.

IRA Financial has a unique partnership with Gemini Exchange. Fees are kept to a minimum when using these companies in tandem. If the individual had used IRA Financial Trust & Gemini to purchase the cryptocurrencies, she would have paid the following:

Amount Funded$378,062.00
Total Fee %0%
Digital IRA Company %0%
IRA Broker Commission %0%
Gemini Exchange %1.49%
Broker Fee$0
Digital IRA Company Fee$0
Gemini Exchange Fee$5,633.12
Total Fees$5,633.12

Hence, if the individual took advantage of our partnership with Gemini to purchase her cryptocurrencies, she would have paid just $5,633.12 in commissions versus $45,432.24.  Making matters even worse, this digital IRA company & IRA broker will charge the same fees on a sale of the cryptocurrencies. Thankfully this client found IRA Financial Trust & Gemini and is now working on unwinding the prior investments so that they can be held more cost effectively.

Don’t Let Fees Ruin Your Retirement

Fees play a big role in determining the net returns on any investment. Taking excessive fees out of retirement account investments hurt even more because the funds are tax-deferred or tax-free in the case of Roth, and are specifically earmarked for retirement.

The lesson to learn from this very sad story, is use the internet as a resource.  Do your homework and ask questions.  If fees seem high and confusing, be cautious and look around for other options.  Bottom line is that using a Self-Directed IRA to purchase cryptocurrencies is actually quite easy to set up and actually very cost effective.  Still in its infancy, investing in Bitcoin and other cryptocurrencies can be risky as the price is quite volatile.  However, using an IRA to purchase cryptocurrencies is very tax advantageous.  Although, using a Bitcoin broker or gold company could end up eating up any of your potential tax-free profits.

Avoid this fee nightmare and lower your Bitcoin IRA fees by contacting us at IRA Financial to see how our fee structure is designed to allow for the must tax efficient returns on your crypto investment.


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