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Ethereum Investments with a Self-Directed IRA

ethereum investments self-directed IRA LLC

Ethereum Investments are Smarter with a Self-Directed IRA

Ethereum

Ethereum, a cryptocurrency, launched back in 2015. It is a decentralized software platform that enables Smart Contacts and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control or interference from a third party. The applications on Ethereum are run on its platform-specific cryptographic token, known as ether. Ether is like a vehicle for moving around on the Ethereum platform, and is sought by mostly developers who want to develop and run applications inside Ethereum. According to Ethereum, it can codify, decentralize, secure and trade just about anything.

Ethereum Classic

Ethereum Classic is one of two separate versions of Ethereum’s Blockchain, the other being Ethereum itself. The split occurred after The DAO, a decentralized autonomous organization based on Ethereum, was hacked on June 2016. During this hack, $50 million worth of its funds were stolen. Because The DAO was crowdfunded, this event resulted in a large number of people losing their stakes. After several weeks of heated debate, the community conducted a “hard fork” of Ethereum’s Blockchain in order to “code” the stolen money back to its owners.

In order to perform the hard fork, the majority of the users had to simultaneously take all the transaction records prior to the point of the hacking, and start anew from there. They then discarded all transactions which took place after that, including the hackers. Ethereum is the new cryptocurrency, and the old one was renamed Ethereum Classic

How to Hold Cryptocurrencies owned by a Retirement Account

Cryptocurrencies, such as Ethereum, are generally as secure as possessing physical precious metal. Just like holding a gold bar, a person who takes reasonable precautions will be safe from having their personal cache stolen by hackers.

A bitcoin wallet can be stored online, like a cloud service, or offline in a hard drive or USB stick. The offline method is more hacker-resistant and absolutely recommended for anyone who owns more than 1 or 2 bitcoins but it is not without risk. Your Self-Directed IRA LLC should have a separate wallet, either online or offline, for the cryptocurrencies owned by the Self-Directed IRA LLC. The IRA LLC owned wallet should not hold any cryptos owned with non-retirement funds. In other words, a bitcoin wallet should not hold retirement accounts owned and personally owned cryptos.

More than hacker intrusion, the real risk of loss with bitcoins revolves around not backing up your wallet with a fail-safe copy. There is an important .dat file that is updated every time you receive or send bitcoins, so this .dat file should be copied and stored as a duplicate backup every day you do bitcoin transactions.

The IRS Allows Retirement Accounts to Purchase Cryptocurrencies

When it comes to investments, there are only three things you cannot do with a self-directed IRA: you cannot purchase life insurance, collectibles, or perform direct and indirect prohibited transactions in Internal Revenue Code Section 4975(c). You can find more on direct prohibited transactions and indirect prohibited transactions on IRA Financial’s YouTube channel.

Because the IRS treats cryptocurrencies, such as Ethereum, as a capital asset, like stocks or real estate, a retirement account can buy, sell, or hold cryptocurrencies in their retirement account.

The Self Directed IRA LLC to Buy Ethereum

Why would you use a self-directed IRA LLC to purchase cryptocurrencies, such as Ethereum?

  • Gains are tax-free
  • No time limit for holding property – no need to worry about 12 month holding period for long term capital gain treatment
  • Potential to earn a larger rate of return on invested capital
  • Diversify your retirement portfolio from over-exposure to Wall Street
  • Protect your retirement funds from inflation or a falling U.S. dollar
  • Invest with privacy

How to Use a Private Key Control Self-Directed IRA LLC to Invest in Cryptocurrency

Working with IRA Financial Group to purchase cryptocurrencies, such as Bitcoins, Ethereum, Ethereum Classic, or Litecoins with a Self-Directed IRA is quick and easy.

  1. Establish a Self-Directed IRA account with IRA Financial Group.
  2. Rollover retirement funds, cash or in-kind, tax-free to new Self-Directed IRA account.
  3. The IRA assets will then be transferred to the LLC tax-free in exchange for 100% interest in the newly established IRA LLC.
  4. As manager of the LLC, you 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.
  5. You, as manager of the LLC, will then have checkbook control over all the assets/funds in the IRA LLC to make the Ethereum or other cryptocurrency investment.
  6. A cryptocurrency account will be opened in the name of the IRA LLC. We have helped hundreds of clients establish cryptocurrency accounts for their self-directed IRA LLC at most of the popular cryptocurrency exchanges.
  7. As manager of the LLC, you then wire the IRA LLC funds to the new cryptocurrency account opened at the exchange. The account will be opened in the name of the IRA LLC. You will have the option to keep the cryptos on an exchange, such as Coinbase, or move them to a digital or hard-wallet you control and where you hold the private key.
  8. Since the LLC is owned 100% by an IRA, it will be treated as a disregarded entity for tax purposes. No Federal income tax return is required to be filed and all income and gains from the cryptocurrency investment will flow back to the IRA without tax.

For more information about using an IRA to invest in Ethereum, please contact us @ 800.472.0646 today!

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Posted in Self-Directed IRA