As the price Bitcoin (BTC) has surpassed $30,000, we have seen increased interest in using IRA and other retirement plan funds to own Bitcoin and other cryptocurrency. But can your IRA, Roth IRA, solo(k) or other retirement account own Cryptocurrency? Yes, your IRA can invest in and own bitcoin and other cryptocurrencies. Bitcoin is a form of virtual currency using blockchain technology, and can be exchanged between parties for goods and services, or for dollars. When I wrote my first article on this topic and recorded the video on how it works I noted that from 2011 to July 2017, the value of Bitcoin has risen from $0.30 per Bitcoin to $2,550 per Bitcoin. It has recently surpassed $30,000 per Bitcoin. As investment interest and values have increased, we’ve been fielding questions from investors about whether their retirement account can invest in and own actual Bitcoin or other forms of cryptocurrency.
Can Your IRA Own Bitcoin or Other Cryptocurrency?
Well, the short answer is: “Yes, your IRA can own Bitcoin and other forms of cryptocurrencies, such as Ethereum and Litecoin.” The only items an IRA cannot invest in is life insurance, S-Corp stock, and collectibles as mentioned in IRC 408(m), which refers to tangible personal property such as “art, rugs, coins, etc.” and “any other tangible personal property the Secretary determines.” Bitcoin is certainly an intangible item by all accounts and would not be considered tangible. As a result, an IRA can own Bitcoin or other cryptocurrency since such investments are not restricted.
How Are Bitcoin Gains Taxed?
The IRS issued IRS Notice 2014-21 addressing the taxation of Bitcoin and cryptocurrency, and stated that Bitcoin and other forms of virtual currency are property. The sale of property by an IRA is generally treated as capital gain, so the buying and selling of cryptocurrency for investment purposes wouldn’t trigger unrelated business income tax (UBIT) or other adverse tax consequences that can occasionally arise in an IRA.
How Do I Own Bitcoin with My SDIRA?
There are three steps to own Bitcoin or other cryptocurrency with your IRA:
1. First, you will need a self-directed IRA or other account with a custodian who allows for alternative assets, such as LLCs. Our company, Directed IRA and Directed Trust Company, has worked with thousands of self-directed investors and can establish your self-directed IRA, Roth IRA, or solo(k) account that can be used to invest into cryptocurrency.
2. Second, you will invest funds from the IRA into the LLC. Your IRA will own an LLC 100%, and that LLC will have a business checking account. For more details on IRA/LLCs, please check out my prior video here.
3. And third, the IRA/LLC will use its LLC business checking account to establish a wallet to invest and own Bitcoin or other crypo through the wallet. The most widely used Bitcoin wallet is through a company called Coinbase, and you can use your wallet on Coinbase to buy, sell and digitally store your cryptocurrency. Other popular sites and exchanges include Binance, Kraken, and Bittrex. The wallet is the method used to store the cryptocurrency keys that are used to transfer the cryptocurrency. You can use off-line hardware wallets that the IRA/LLC purchases or you can wallets that are based on-line such at Coinbase.
There are already certain publicly-traded funds and other avenues (e.g. Bitcoin Investments Trust) where you can own shares of a fund that in turn owns Bitcoin. But, if you want to own Bitcoin directly with your IRA, you’d need to follow the steps outlined above. There are also companies who will own Bitcoin and other Cryptocurrency directly in your account without the need for an LLC. This option has two drawbacks investors should be aware of. First, the IRA custodian will have the keys to the cryptocurrency. These keys are the actual items you must have to transfer or sell the crypto to someone else. If the keys are lost, so is the crypto. It would be like losing possession of the cash. When you use an IRA/LLC, you have and hold the keys to the cryptocurrency. This puts you, the investor, in greater control and is why we have used the IRA/LLC structure to help self-directed IRA account holders own Cryptocurrency.
Keep in mind, Bitcoin and other forms of cryptocurrency have significant potential in the digital age. However, as with any new market investment, make sure you proceed with caution, and don’t “bet the farm” or “go all in” on just one investment or deal. There have been repeated cases of digital fraud and loss of keys that have been devastating for investors so make sure you are working with reputable companies and sites when investing in Cryptocurrency with you IRA.
The SECURE Act was signed into law by President Trump at the end of 2019, and makes sweeping changes to the laws affecting retirement plans, including IRAs. The law, known as the SECURE Act, is a mixed bag of good, bad, and ugly. This article breaks down the details that IRA owners need to know moving forward.
RMD Age Raised to 72
Required Minimum Distributions (RMDs) are no longer required until the IRA owner reaches 72. Prior to the new law, RMDs were required once the account owner reached age 70½. By extending the RMD requirement to 72, IRA owners can delay taking distributions from the IRA by an additional 1½ years. This is a good thing as you can let more money grow tax-deferred. The 70½ year rule was also confusing, as it takes a while to do the math and figure out what year you turn 70½. It used to be the only half-birthday you had to keep track of. There is still no RMD requirement on Roth IRAs. If you already reached 70½ in 2019 or earlier, and haven taken out previous distributions, then you continue taking distributions as usual (even if you aren’t yet 72).
IRA Age Limit for Contributions Removed
There is no longer an age restriction on when you can contribute to an IRA. Prior to the law, Traditional IRA contributions were restricted once you reached RMD age of 70½. Under the new law, there is no longer a restriction (even when you each 72). This means older IRA owners who are still working or have earned income can continue to contribute to a Traditional IRA.
Exception to 10% Early Withdrawal Penalty for Birth or Adoption
A new exception to the 10% early withdrawal penalty was added in the case of the birth or adoption of a child. This is limited to $5,000, but will allow new parents to withdraw up to $5,000 from any IRA or other retirement account without having a 10% early withdrawal penalty apply. Taxes would still be due on Traditional (pre-tax) funds withdrawn, but the 10% penalty is waived.
The Stretch IRA Has Been Gutted
The Stretch IRA, whereby a non-spouse could inherit an IRA or Roth IRA and take distributions over their lifetime, has been gutted. While a non-spouse can still inherit an IRA or Roth IRA, the account (in most instances) must be distributed in 10 years. There are no annual distributions required under this new rule over the 10-year period. Instead, the total account balance just needs to be distributed in 10 years. So, if you inherit an IRA in 2020 or later, then you will have 10 years to continue investing the account and you can take distributions whenever you want (or just at the end) with the full amount being distributed within 10 years. There are some persons who can still use the old Stretch IRA rules, but these groups are limited and include: Disabled or chronically ill persons, minor children inheriting, and beneficiaries not more than 10 years younger than the IRA owner.
The elimination of the Stretch IRA was bad and ugly. What else can I say? The only good news is that those who have already inherited one in 2019 or earlier can still operate as usual. Everyone else who looked forward to one will have to take solace in the fact that they at least have 10 years of “stretching” to continue investing the funds in a tax-free (Roth) or tax-deferred (Traditional) manner. And, under the new rule, there is no RMD rule in effect each year. Instead, the total amount must be distributed at the end of 10 years. This makes things a little easier with self-directed assets and also helps any IRA owner – 10 years is still a good amount of time – get a little bit of additional tax-deferred (Traditional) or tax-free (Roth) growth.
At Directed IRA we are a custodian of inherited Traditional IRAs and inherited Roth IRAs, we are keenly aware of the changes and are helping our clients understand the new rules. Please reach out and gives us a call ((602) 899-9396) if you have questions on these new rules.
Mat has been at the forefront of the self-directed IRA industry since 2006. He is the CEO of Directed IRA & Directed Trust Company where they handle all types of self-directed accounts (IRAs, Roth IRAs, HSAs, Coverdell ESA, Solo Ks, and Custodial Accounts) which are typically invested into real estate, private company/private equity, IRA/LLCs, notes, precious metals, and cryptocurrency. Mat is also a partner at KKOS Lawyers and serves clients nationwide from its Phoenix, AZ office.
He is published regularly on retirement, tax, and business topics, as well as a VIP Contributor at Entrepreneur.com. Mat is the best-selling author of the most widely used book in the self-directed IRA industry, The Self-Directed IRA Handbook: An Authoritative Guide for Self-Directed Retirement Plan Investors and Their Advisors.
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Tom W. Anderson
The "Self Directed IRA Handbook" by attorney Mat Sorensen is the most comprehensive book ever written about one of the best investment and retirement savings tools ever created: the Self-Directed IRA. Mat has performed the impossible by effectively delivering complex information in an easily understandable manner for the layperson, while providing the necessary legal basis to suit the professional. Mat's book is a "must read" for investors, attorneys, CPAs, and other professionals and other interested individuals wanting to learn about all there is to know about Self-Directed IRAs.
Mat's books is a great reference guide for self-directed IRA investing – Best I’ve seen in 30 years of being in the business.
CEO, Polycomp Trust Company
Mat's book is an excellent resource for self directed IRA owners and their advisors. It is the first of its kind in our industry. Mat has truly written an “Authoritative Guide” for self directed IRAs.
President, Polycomp Trust Company
Mark J. Kohler
Mat is truly an expert on self directed IRAs, and his book is the one book that every self directed IRA investor should read.
Mark J. Kohler
CPA, Attorney, Author
I was referred to Matt for help in setting up an IRA owned LLC. Matt and his team did an incredible job completing the work in a few short days. The process was professional, efficient and cost effective. I continue to rely on Matt for guidance running the LLC and related real estate matters. Not only is Matt a good lawyer, he runs a great office. It is easy for me to recommend Matt and his team.
We have used Matt for many legal matters and he always comes through with shining colors. I highly recommend Matt for any legal or tax matter.
Real Estate Broker & Investor
Mathew is the legal partner for the majority of my clients. Matthew provides solid legal advice, precise strategic planning, appropriate corporate structure development, and is readily available to consult with his clients on all legal and business manners. Matthew is well respected and has an extremely large network in the successful real estate investor world. Matthew is reliable, professional and an all around great partner to have on your side
I have retained Mathew Sorensen several times for multiple real estate deals and have been very pleased with his efforts and work product and will continue to use him in the future.
Real Estate Investor
My wife and I recently sought Mat's help with estate planning and couldn't have been more satisfied. Mat's professionalism, honesty, creativity and attention to detail is second to none. What impresses me the most about Mat can be summed up as "diverse". Mat's vast knowledge and experience in a plethora of differing areas of the law is astounding. I highly recommend Mat to my clients and friends seeking legal help.
Mat is a highly qualified...lawyer specializing in real estate. He's personable and professional, knows his stuff and is a nice guy. It doesn't get any better than that. I really liked the way he explained everything to me at my level so I got it. He also advised the best way for me to proceed with my RE investments. He handled my case in a timely manner with high integrity.
I have had the opportunity to engage Mat's services on many occasions and have found him to be diligent and reliable. He has always been committed to delivering high-quality work and is very professional. He is well-liked and respected by his peers. He has my most sincere recommendation.
Mathew Sorensen is a great resource and I use him consistently for real estate law questions. He is a wealth of information and will always give you a great knowledge base. I have been using KKOS for a while now and am very impressed and happy with their services.
CPA, Real Estate Investor
Kenneth P. Child
[Mat] is completely devoted to his clients and continually strives to stay abreast of changes and updates in the law. Mat is an unbelievably hard worker and...I don't hesitate to recommend Mat's services to anyone as I know he will take care of them and give them simple, concise, and straightforward solutions to any legal issue they may be facing.
I am a partner in a law firm in Chicago and I have worked with Mat on my personal real estate and business ventures. Mat has given me practical and wise advice which has helped me make profitable decisions. I highly recommend Mat.
Attorney & Real Estate Investor
Mathew is an excellent attorney, well versed in the Self-Directed IRA market…His ability to distil the complexities of the Self-Directed IRA so that the average person can understand them, and ensure that they don't get "tripped up" is second to none. Anyone interested in this Self-Directed IRA Market would do well to connect with Mathew and learn from the best.
"Mat's book is an excellent resource for self directed IRA owners and their advisors. It is the first of its kind in our industry. Mat has truly written an“Authoritative Guide” for self directed IRAs."
"Mat is an excellent attorney, well versed in the Self-Directed IRA market...His ability to distill the complexities of the Self-Directed IRA so that the average person can understand them, and ensure that they don't get "tripped up" is second to none.
"Mat’s book is the most practical and comprehensive self directed IRA guide in our industry. Reading this handbook should be the first step for any alternative asset investor, investment sponsor, or trusted advisor that seeks to become informed about how to maximize the value of IRAs."
"The Self Directed IRA Handbook by attorney Mat Sorensen is the most comprehensive book ever written about one of the best investment and retirement savings tools ever created: the Self-Directed IRA."
Founder and Retired CEO, PENSCO Trust Company
Mat’s book is the most practical and comprehensive self directed IRA guide in our industry. Reading this handbook should be the first step for any alternative asset investor, investment sponsor, or trusted advisor that seeks to become informed about how to maximize the value of IRAs.