Can You Buy Bitcoin With An IRA?
Bitcoin has come a long way towards acceptance by governments as a viable currency since its inception 10 years ago. In 2014, the Internal Revenue Service gave Bitcoin greater validity in the United States by declaring that it has an equivalent value to other currencies that are government regulated. This means that Bitcoin can be used to purchase goods, services, etc. and that it can be traded or exchanged into other currencies such as the U.S. Dollar, the Euro, etc. Furthermore, the IRS gave Bitcoin the status of a commodity which is an asset or property.
Both of these declarations mean that Bitcoin can now be used to form part of an Individual Retirement Account (IRA) as an investment or asset that may or may not increase in value. This does however only apply to a Self-Directed IRA and not to traditional Pension Funds or IRAs. As a commodity, a custodian will be required. A self-directed Bitcoin IRA is individually managed and allows for investments unlike other forms of IRAs.
Should You Buy Bitcoin For An IRA?
Although currency and therefore Bitcoin is not traditionally purchased to form part of an IRA portfolio, it is becoming a much more popular option. This is due primarily to two factors. One, digital technology now makes it possible to purchase and sell currencies without having to interact directly with a broker. Two, cryptocurrencies have provided everyone with the opportunity to purchase the currency as it is not government regulated.
The question does, however, remain whether you should buy Bitcoin as part of your IRA investment portfolio. There are many factors that affect this choice and it is highly recommended to discuss it with a financial adviser. One of the most favorable factors for buying bitcoin is that the value of the currency is not affected by traditional factors such as the political climate and economy of a country.
On the other hand, this investment may require some Forex trading knowledge and skills in order to make the most of the investment. Knowing when to buy and when to sell is integral to being successful at investing in a currency. Be aware that limits do apply to how much Bitcoin can be added to an IRA and severe tax penalties can apply should these limits be exceeded. It is also important to note that there are tax implications should the Bitcoin be withdrawn from the IRA before the age of 59.5 years of age.
How To Buy Bitcoin With An IRA?
The first step to buying Bitcoin with an IRA is to establish a Self-Directed IRA. You can either contact a recognized custodian to set up the IRA or you can use an IRA LLC to manage the IRA. If you choose a custodian, the amount in your existing IRA will be rolled over into the Self-Directed IRA. There are some rules that apply to this process. For example, you cannot roll over funds from a Roth IRA or 401K into a simple or traditional IRA account.
You can then direct the custodian to buy Bitcoin with your IRA. Be sure to keep the limits for buying Bitcoin with an IRA in mind and ensure that the custodian does not exceed this amount.
Alternatively, you can set up an LLC Self-Directed IRA. The LLC (Limited Liability Company) will act as the buyer and/or seller of the Bitcoin. Once again, it is critical to keep the buying limits in mind when buying and selling through an LLC. When using this method, the amount in your current IRA will be transferred into the LLC account which will then purchase the stated Bitcoin. The amount purchased will then be transferred back into the IRA. This process will be repeated for every purchase or sale of Bitcoin.
If you currently own Bitcoin, this cannot be transferred directly into your IRA. You will need to sell the Bitcoin you currently own and then transfer the funds into the LLC account. These funds will then be used to purchase Bitcoin which will then be transferred into the IRA.
It is however recommended to use a custodian to set up a self-directed IRA to provide management and administration of the IRA and ensure that it meets the necessary requirements for an IRA. The process of setting up an IRA LLC or Self-Directed IRA can be complicated and it is best to get advice and assistance from a financial adviser.
It is also important to note that not all custodians will provide the opportunity to add Bitcoin to your IRA investment portfolio. Traditionally, custodians make investments into stocks, bonds, and other commodities to form part of an IRA portfolio. If you want a Bitcoin IRA, you may need to contact a custodian that provides this as an investment option or primarily invests in Bitcoin for an IRA.
Bitcoin Investment Strategy
Like every type of investment, a strategy should be implemented when choosing to add Bitcoin to your IRA. Once again, it is recommended to consult with a financial adviser to assist in creating the best strategy to suit your individual Self-Directed IRA needs
One of the first and most important decisions to make is whether a regular Self-Directed IRA or Roth IRA is better suited to your Bitcoin investment needs. There are many different distinctions between the two accounts including the tax implications. Choosing the right option will lay the foundation for your Bitcoin buying strategy.
The next decision should be with regards to your buying strategy. Should you buy Bitcoin once-off as a long-term investment that will remain in your IRA until your age of retirement or is an ongoing buying strategy where a specified amount is bought on a regular basis best? There is also the option to buy and sell your Bitcoin for faster growth.
Ideally, what you are looking for as an investment opportunity for your IRA is slower gains that are more sustainable in the long-term and lower the risk of loss. Bitcoin fulfills these requirements as a long-term investment.
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