Three Things You Need To Know Before Buying Bitcoins With An IRA

March 15th, 2018

This article, written by IRA Financial Group President Adam Bergman, recently appeared on

The IRS has made it clear in IRS Notice 2014-21 that cryptocurrencies shall be treated as property for federal income tax purposes. Accordingly, just like stocks and real estate, cryptocurrencies may be purchased with retirement funds.  The question then becomes, if one is interested in using IRA funds to purchase cryptocurrencies, what are the ways one can do so.

All IRA accounts are held for investors by custodians or trustees. These may include banks, trust companies, or any other entity approved by the IRS to act as a trustee or custodian.  A self-directed IRA is an IRA held by a custodian that allows for a broader and more diverse set of investments than is permitted by traditional IRA custodians, such as banks. Self-Directed IRA custodians will allow investors to invest retirement funds in other types of assets such as real estate, promissory notes, private placement securities, and even cryptocurrencies.

Before one decides to purchase cryptocurrencies, such as Bitcoins, with a self-directed IRA, there are three main items to keep in mind:

  1. Control Your Own Private Key

There are generally two ways to purchase cryptocurrencies with IRA funds: (i) The Bitcoin IRA Broker/Custodian Controlled approach, and (ii) the Wallet Control IRA LLC solution.  Both structures have some advantages and disadvantages.

With the Bitcoin IRA broker approach, once the cryptocurrencies have been purchased by the broker, they are stored in a digital wallet, which typically requires multiple signature verification.  However, the IRA investor does not control the cryptocurrency wallet or the associated private key.  In addition, selling or exchanging the cryptocurrency requires interaction with the broker and cannot be done online.  Furthermore, commissions are imposed on each side of the transaction.

Whereas, with the Wallet Control IRA LLC, the self-directed IRA is invested into a newly established LLC that is owned by the IRA and managed by the IRA holder.  The IRA LLC will then establish a cryptocurrency exchange and link the exchange account to the new IRA LLC account.  The IRA holder, as manager of the IRA LLC, will have the power to purchase and hold the cryptocurrencies online or via a digital or hard wallet.  The IRA holder, as manager of the LLC, will have control over the private key associated with the IRA LLC owned cryptocurrencies.

  1. Understand the Fees Involved Before Starting

With the Bitcoin IRA Broker/Custodian Controlled approach, the IRA investors must purchase the cryptocurrency through brokers associated with the Bitcoin IRA facilitator.  The cryptocurrencies are typically purchased by phone and the investor is limited to investing in the cryptocurrencies offered by the broker.  The broker will typically charge commissions between 10%-25% for the purchase and sale of the IRA owned cryptocurrencies. Whereas, in the case of the Wallet Control IRA LLC, the IRA holder, as manager of the LLC, will have the ability to purchase and sell cryptocurrencies on any exchange of his or her choice, allowing one to have more control over the costs involved.  Most cryptocurrency exchanges charge transaction fees of between 0.15-2%.

  1. Consider the Risks Involved & Nature of the Cryptocurrency Market

Whatever platform you decide to use if contemplating investing retirement funds into cryptocurrencies, it is vital that investors understand the financial risks.  Cryptocurrency IRA investors should have the financial ability to bear the risks of a cryptocurrency investment, and a potential total loss of their investment. Cryptocurrency investments, such as Bitcoins, are uncertain and highly volatile.

The cryptocurrency market trades 24 hours a day, seven days a week. For one, the 24-hour market structure requires investors to think about the daily price changes in their positions through a different conceptual lens than their stock portfolios. Whereas, in the U.S., stocks listed on The New York Stock Exchange or the NASDAQ Stock Market trade during regular market hours, between 9:30 a.m. and 4 p.m. EST.

With the Bitcoin IRA Broker/Custodian Controlled approach, selling or exchanging the cryptocurrency requires interaction with the broker only during regular weekday business hours and cannot be done online.  In the case of a Wallet Control IRA LLC, the IRA holder, as manager of the LLC, will have total control over the cryptocurrencies and can buy and sell the cryptocurrencies 24 hours a day, seven days a week.

Any retirement account investor interested in using retirement funds to invest in cryptocurrencies should do their diligence and proceed with caution.

For more information about investing in Bitcoin with your IRA, please contact us @ 800.472.0646.

IRA Financial Group Facebook pageIRA Financial Group Twitter pageamazon-logoIRA Financial Group Tumblr pageIRA Financial Group Pinterest page