A self-directed IRA allows you to invest in Bitcoin, among thousands of other alternative investments. You can use a traditional IRA (pre-tax funds) or a Roth IRA (tax-free withdrawals). If cryptocurrency is an asset that interests you, the good news is that you can invest in “cryptocurrency” with your self-directed IRA (SDIRA). Whether you invest with your traditional IRA or Roth, your SDIRA allows you to combine a tax-advantaged strategy with a cryptocurrency investment strategy.
Digital currency is bought and used by people, sellers, companies and even countries that allow it to be used. Investing in cryptocurrencies such as Bitcoin, Litecoin, Ethereum and others is possible with a self-directed IRA. Profits earned in a self-directed cryptocurrency IRA are paid directly to the IRA without any other taxable liability other than the one that applies when you retire. Cryptocurrency is a digital form of tokens or “coins” that can be exchanged for goods and services.
Many companies issue their own digital currency that can be traded specifically for their goods or services. Blockchain is a highly secure technology that manages and records cryptographic transactions. There are many types of cryptocurrency available, in fact, more than 6,700. You can invest in cryptocurrency in a self-directed IRA.
When you do, your earnings go directly to the tax-free IRA. Most individual retirement accounts (IRAs) are managed by custodians or trustees, mostly banks or stockbrokers. Self-directed IRAs allow you to control what's in your IRA using these professionals. In theory, you should be able to add Bitcoin to these accounts if allowed.
Cryptocurrency is self-regulating, ensuring stability, avoiding double spending and creating a long lifespan. Self-directed IRA investments aren't limited to stocks, bonds, and mutual funds like conventional IRAs are. Bitcoin, Ethereum and more than 50 additional cryptocurrencies are listed on the Gemini Exchange and new ones are constantly being added. While a taxable brokerage account doesn't offer the same tax benefits as an IRA, it can be easier to set up than self-directed accounts.
The difference between a self-directed account and other types of IRAs is what you can use them to invest in. Cryptocurrency investors generally need to be comfortable with extreme price swings and potentially lose all their investment. While investments in digital currencies have the potential to be lucrative, cryptocurrencies are volatile. However, when you trade cryptocurrency as an investment in a self-directed IRA, profits enjoy tax-free account growth.
Whether you're planning to open a self-directed IRA specifically for cryptocurrency or not, it's important that you understand the applicable IRS rules and the potential costs that could entail. As part of your Crypto account application, you will authorize us to set up a Gemini trading account for your IRA. In addition to researching, work with an experienced, self-directed and accredited IRA administrator to open your account and fund it properly. You can indirectly add cryptocurrency to your self-directed IRA through a purchase, as stipulated in the regulations.
However, it is important to note that, while scams are one of the methods most used by bad actors, more cryptocurrencies are stolen directly than those acquired through scams and, regardless of what politicians and the media say, not all offers related to cryptocurrencies are scams. You'll need to specifically look for a self-directed IRA custodian who offers cryptocurrency as an investment option.