- Self-Directed IRA-LLCs, QRPs, QRP-LLCs, and Solo 401k Plans can buy and sell Bitcoin and other cryptocurrency the same way they can invest in real estate, private equity, tax liens, stocks, and mutual funds.
- When using Checkbook-Control Retirement Accounts, the process for trading Bitcoin, Ethereum, Litecoin, Zcash, Dash, Ripple (XRP), Monero and all other cryptocurrencies is very much the same as when purchasing them outside of retirement accounts.
Is Bitcoin IRA or Bitcoin 401k legal? Does the IRS allow Crypto IRA and Crypto 401k?
- Yes, Bitcoin (BTC), Bitcoin Cash (BCH), Litecoin (LTC), Dogecoin (DOGE), Ripple (XRP), Ethereum/Ether (ETH), Ethereum Classic (ETC), Dash (DASH), Monero (XMR), IOTA (IOT), and all other cryptocurrencies are permissible investments for IRAs and 401(k)s.
- Section 408 of the IRC enumerates the non-permissible assets for retirement accounts and virtual currency is not among those. The only assets not available to IRAs are collectibles, life insurance, and S-Corp stock. Solo 401k plans can purchase life insurance (subject to some complex rules and limitations), but not collectibles.
Why use a Tax-Sheltered IRA, 401k, QRP, or other retirement account for Crypto investing?
- Currently, the IRS treats cryptocurrency as property, not money (currency). The classification of virtual currencies for tax purposes has many implications.
- This treatment requires recognition of taxable income or gain whenever cryptocurrency is sold, making tax-advantaged retirement accounts an attractive way to buy and sell Bitcoin.
- Roth IRAs and Roth Solo 401k plans are particularly attractive for Bitcoin investments, being that the potential gains have been – and are expected to be – astronomical. See IRS Notice 2014-21 for details.
How Can I Buy Bitcoin in My Self-Directed Solo 401k or IRA/LLC?
Buying Bitcoin requires a Bitcoin Wallet to hold Bitcoin and access to a Bitcoin Exchange or other point at which cryptocurrency can bought or sold. Ownership of the asset should vest in the name of your IRA-LLC or Solo 401(k) Trust, not in your personal name.
What is a Bitcoin Wallet?
A Bitcoin Wallet holds the private keys, or secret codes, that enable Bitcoin transactions. Bitcoin Wallets can be either Hardware Wallets (“Cold Storage”), Hot Wallets (“Web Wallets”), or Paper Wallets. Hardware Wallets are purchased for a fee, but are far more secure.
Note: As crypto investing is an emerging area, many compliance & legal questions do not yet have clear answers. At all times, it is imperative that retirement account assets be properly titled and held by the retirement account. From an SDIRA & QRP compliance perspective, it may be best not to move crypto assets to an offline hardware wallet.
Where and How Can You Buy Bitcoin For Your Checkbook QRP, Solo 401k or IRA-LLC? Be aware of Checkbook Control Bitcoin Compliance
Bitcoin retirement account investing using checkbook control is a new and exciting way to leverage tax-advantaged retirement accounts. Determining title, ownership, and legal rights to Bitcoin is an evolving area of law.
Following are some best practices to avoid Prohibited Transactions in your Bitcoin retirement account:
- Crypto exchange accounts should be titled in the name of your 401k-LLC, QRP, IRA-LLC or Solo 401k Trust.
- All transactions you engage in on behalf of your retirement account are in your capacity as IRA-LLC Manager or Solo 401k Trustee, which should be reflected on any documentation (e.g., John Doe as Manager of IRA-LLC, John Doe Trustee FBO Solo 401K Trust).
- The EIN attached to any account should use the EIN of your IRA-LLC or Solo 401K Trust.
- Use an “institutional account” titled in the name of the appropriate entity – NOT in your personal name; i.e., the account should be titled in name of the investing entity, which would be your QRP, 401k-LLC, IRA/LLC or One-Particpant 401k Plan, as applicable.
- Many crypto exchanges offer such institutional accounts, which can be titled in the name of an LLC, trust, Qualified Plan, or Solo 401k Trust. Some examples are those offered by Coinbase, Gemini, Kraken (Kraken instructions for corporate and institutional accounts), Uphold, and Paxos itBit.
- You should have separate keys (public and private keys) and “addresses” for your retirement account Bitcoin investments and personal Bitcoin transactions. It is advisable to have separate Bitcoin wallets, as well.
- Based on the McNulty case, moving crypto assets from a properly titled exchange account to a cold wallet presents increased compliance risk.
- Due to the Prohibited Transaction Rules of IRC 4975 you should not have any credit cards for your IRA-LLC, Solo 401k, or Solo 401k LLC, so credit card Bitcoin purchases are not an option for your retirement account.
Of course, ReSure does not recommend any crypto exchange or service provider and you should perform adequate due diligence prior to entrusting your funds to any person or entity.
Use checkbook control retirement accounts to diversify your investment portfolio and invest in alternative and traditional assets, including cryptocurrency, real estate, stocks, tax liens, litigation finance, private lending, merchant cash advance, precious metals, crowdfunding, and mutual funds. Individual 401k plans and IRA-LLCs are the most efficient and cost-effective way to control your investments.