Bitcoin Cryptocurrency

Bitcoin cryptocurrency can be purchased as an investment in your retirement account using a self-directed IRA LLC.

Bitcoin and Other Cryptocurrency as Investments in Retirement Plans

Cryptocurrency (or virtual/digital currency) delivers a way to trade across the globe without government regulation or centralized oversight. Transactions are performed on self-regulating platforms that are visible for the public to see. This self-regulation ensures stability, prevents double spending, and helps create longevity to ensure value as a viable currency or asset within the broader scope of e-commerce.

Bitcoin is a common term people use to refer to all cryptocurrency because it was the first created (in 2009). Only 21 million Bitcoin can ever be produced and roughly half of that amount is already being used. The scarcity helps create its value. However, Bitcoin is just one name of over a thousand of cryptocurrencies now available to consumers and investors. Bits are bought and used for goods and services by individuals, vendors, businesses, and even countries who allow their use. Investors also use Bitcoin as an asset and the cryptocurrency is even permissible in self-directed retirement plans.

Cryptocurrency as an Investment in Retirement Plans

There are three ways to invest in Bitcoin and other cryptocurrencies:

  1. Buy and sell like forex and futures trading
  2. Invest in the mining process
  3. Invest in Bitcoin Trust, ETFs, and hedge funds

Tax-free or tax-deferred growth in self-directed retirement plans can be acquired using Bitcoin and other virtual currencies. For income tax reporting purposes, they are deemed personal property by the IRS as stated in Internal Revenue Bulletin 2014-16, Notice 2014-21. In the case of investing with your IRA, your IRA would own the asset (not you personally).

Individuals invest in these assets with retirement plans just as they invest in forex and futures trading, gold, private equity, or real estate. Returns on these investments enjoy a tax-sheltered status that helps build diversity and wealth in portfolios.

Due Diligence

Understand how cryptocurrency works before investing.

Buying and using cryptocurrency is transparent and visible to the public, which creates the self-regulating aspect of virtual currency.

  • Digital wallets store the encryption keys to bits you’ve purchased which prove ownership and allow you to spend them.
  • Blockchain is the public ledger established to follow and link bits from the time of purchase until they are used. Past transactions must be confirmed and linked to new blockchains for validation. This is performed by a process called “hashing.”
  • Mining is the public method in which transactions are verified to prove ownership and help prevent double spending. Auditors, or “miners,” are rewarded in bits for each transaction they complete.

Not all platforms offer the same benefits. Make sure you choose one who can title the ownership in an IRA’s name. Bitcoin and other cryptocurrency may not be purchased personally and sold to a retirement plan, nor can it be personally guaranteed. Practice due diligence when determining a platform to make sure its terms allow investing to comply with IRS rules and regulations.

Contact Advanta IRA for an in-depth discussion about how Bitcoin works as an investment in retirement plans.

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