The word Bitcoin has become so mainstream that not a day passes without it popping up in the news or conversations on social media. And given the crypto’s incredible price rise in a little over a decade, any right-minded investor would want in on the action.
Bitcoin’s value shot up from basically costing nothing in 2009 to approximately $62,000 as of October 2021. So, how do you go about buying a currency that’s not printed or recognized by a central bank?
Well, one of the best Bitcoin investment strategies involves using an IRA.
Through several agencies like the Securities and Exchange Commission (SEC) and the Internal Revenue Service (IRS), Bitcoin is now being regulated, although not comprehensively.
You can include Bitcoin among your investment portfolio since the IRS considers Bitcoin as property that can be taxed in the same manner as bonds and stocks. It may sound crazy, but buying Bitcoin through an IRA could offer substantially higher returns and add the much-needed diversity to your retirement portfolio.
Keep reading to learn more about our five simple steps explaining how to buy Bitcoin in IRA:
1. Open a Self-Directed IRA
The first step is to open a self-directed IRA (SDIRA) to hold your investment. A self-directed IRA has less restrictive IRS rules, allowing you to invest in alternative asset classes such as real estate, precious metals, and cryptocurrency like Bitcoin.
To open your self-directed IRA, you’ll need to provide your legal name, address, social security number, and banking information. So, be sure to have all the relevant documentation with you.
2. Add Money to Your Account
After establishing your self-directed IRA, you’re going to need to put some money in the account. Different providers usually offer different funding methods. However, in most cases, you can transfer money from your bank account into an account provided by your self-directed IRA custodian.
3. Ask about Your Custodian’s Strategy and Register an LLC owned by Your IRA
Next, get in touch with your self-directed IRA custodian to learn about their preferred strategy. Some will allow you to create a wallet directly in the name of your IRA. Others will ask that you take the intermediary step of establishing a limited liability company (LLC) within your IRA to hold your Bitcoin wallet.
Having an LLC within your IRA to hold your Bitcoin is straightforward, cheaper, and will still get you the same tax-advantaged status as the IRA. The expenses and income associated with Bitcoin will flow through the IRA LLC as per the IRS specifications.
Even though cryptocurrency is considered property for federal tax purposes, the gains are tax-advantaged because Bitcoin is owned by a retirement account. This means you will have even more capital to invest in Bitcoin.
4. Sign Up for a Business Checking Account
Use the money in your IRA to open a business checking account for your IRA LLC, which you will use exclusively for investing in Bitcoin. Gaining access to your checkbook IRA will give you total control of your account transactions.
5. Open an Account on a Crypto Exchange to Buy Bitcoin
Lastly, you need to open an account on a crypto exchange platform using the name and tax number of your IRA LLC.
Besides using a crypto exchange platform, you can also buy Bitcoin via a broker or by investing in a fund that holds different digital currencies through private placement. As such, your IRA buys shares or invests directly as a limited partner.
Note, you can only fund your Bitcoin wallet using capital from your IRA. Do not mix money in your IRA or its wallet with capital from any other source, as doing so can land you in legal problems.
Takeaway on How to Buy Bitcoin in IRA
As is the case with other self-directed investments, you need to conduct sufficient research on Bitcoin if you want to include it in your retirement account. Even though investments in Bitcoin and other cryptos could be lucrative, the volatility aspect should never be sidelined. Prices will fluctuate from time to time, so be sure to go ahead if you can stomach the uncertainty.
Importantly, work with a renowned, trusted, and experienced self-directed IRA administrator to help open and fund your account. Plus, you need to use a platform you can depend on if you have any issues or queries on Bitcoin and other non-publicly traded alternative assets in your self-directed retirement account.
