Cryptocurrencies like bitcoin have become increasingly interesting for investors because of their rapid boom in value. The question is, however, whether you should start a bitcoin IRA. Indeed, some people don’t even know if it is completely legal. With regards to the latter, it is good to know that come out so long as you use a self directed IRA, it is 100% legal to invest in cryptocurrencies. That does not mean, however, that the IRS explicitly approves them, since they do not explicitly approve anything. Before you decide whether or not a bitcoin IRA is for you, you have to ask yourself at least 5 highly critical questions.
5 Question to Ask Before You Start a Bitcoin IRA
- Can you invest in cryptocurrencies such as bitcoin, ethereum, litecoin comma or dash using money you currently hold in a 401 k or IRA? The short and easy answer to that, is yes. However, you do have to consider whether your original account was traditional or Roth because of the tax regulations. Additionally, you must make sure you fund your purchases in accordance with IRS regulations.
- How can you purchase cryptocurrencies to fund your digital IRA? This is where things get slightly more complicated. Most of the time, digital IRA custodians will only allow you to invest in cryptocurrencies if the IRA owns an LLC. Hence, you will need to register as an LLC and have the relevant paperwork in relation to this. Furthermore, you will require registering for a digital wallet, which is needed in order to buy, sell, and trade in any kind of cryptocurrency.
- Are any bitcoin investments specifically approved by the IRS for an IRA? The answer to this question is no. That does not mean it is illegal to invest in Bitcoin. Rather, the IRS only explicitly this allows certain Investments, which are life insurance and collectables, neither of which cryptocurrencies are. The reason why this question is important is because some companies that offer a bitcoin IRA will tell you that they offer only IRS approved investments. That statement is completely false and means you should find a different custodian.
- Are there any risks involved in breaking the rules and set by the IRS? Naturally, there are tremendous risks involved in breaking tax regulations. Hence, it is imperative that you do your research in terms of how you can send your crypto currencies and what’s the tax implications are. Speak to a knowledgeable tax advisor if you are not sure.
- Is Bitcoin a wise IRA investment? That is the million dollar question. However, it is also impossible to answer. The same is true for any type of investment. After all, you never know whether or not something will give you a good return. Right now, cryptocurrencies appear to be a solid investment with high yields. Whether or not that will last is anybody’s guess. Historically, cryptocurrencies have a tendency to shoot up in value before dropping substantially but remaining higher than what they started out as. The question right now, therefore, is whether or not that peak has been reached.