Dec 18

What To Know Before Purchasing Cryptocurrencies With Retirement Funds

The following, written by Adam Bergman, first appeared on Forbes.com:

With the value of Bitcoins and many other cryptocurrencies flying high in 2017, many investors have looked to take advantage of this trend and own cryptocurrencies in tax-advantaged retirement plans, such as a Self-Directed IRA or Solo 401(k) Plan.  This article will explore the main points an investor should know before using retirement funds to buy cryptocurrencies.

What is a Cryptocurrency?

What To Know Before Purchasing Cryptocurrencies With Retirement FundsCryptocurrency refers to a decentralized digital currency that employs principles of cryptography (communication that is secure from view of third parties) to ensure security, privacy, and anonymity. Consequently, the value of a cryptocurrency is not set by anyone other than market participants, who engage in the process of buying and selling on an exchange platform.

Bitcoin has become the leader in shepherding in a wave of cryptocurrencies built on decentralized peer-to-peer network and is the primary standard for cryptocurrencies. The currencies inspired by Bitcoin are collectively called Altcoins and have tried to present themselves as modified or improved versions of Bitcoin.  The five most popular cryptocurrencies are Bitcoins, Ethereum (ETH) & Ethereum Classic, Litecoin, ZCash and Dash.  There are close to 1000 types of cryptocurrencies, so this list can vary over time.

How does the IRS Treat Cryptocurrencies from a Tax Standpoint?

Even though Bitcoin is labeled as a “cryptocurrency”, from a Federal income tax standpoint, Bitcoins and other cryptocurrency are not considered a “currency.”  On March 25, 2014, the IRS issued Notice 2014-21, which for the first time set forth the IRS position on the taxation of virtual currencies, such as Bitcoins.  According to the IRS Notice, “Virtual currency is treated as property for U.S. federal tax purposes.” The Notice further stated, “General tax principles that apply to property transactions apply to transactions using virtual currency.”  In other words, the IRS is treating the income or gains from the sale of a virtual currency, such as Bitcoins, as a capital asset, such as stocks or real estate, subject to either short-term (ordinary income tax rates) or long-term capital gains tax rates, if the asset is held greater than twelve months (15% or 20% tax rates based on income).  By treating Bitcoins and other virtual currencies as property (capital asset) and not currency, the IRS is requiring the investor to maintain detailed transaction records (i.e. basis, holding period, etc.) in order to determine the amount of tax from the cryptocurrency transaction(s).

Can I purchase Cryptocurrencies with a Retirement Account?

The Internal Revenue Code does not describe what a Self-Directed IRA or Solo 401(k) Plan can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain types of transactions. The foundation of the prohibited transaction rules is based on the premise that investments involving an IRA and related parties are handled in a way that benefits the retirement account and not the IRA owner. The rules prohibit transactions between the IRA and certain individuals known as “disqualified persons.” The definition of a “disqualified person” (Internal Revenue Code Section 4975(e)(2)) extends into a variety of related party scenarios, but generally includes the IRA holder, any ancestors or lineal descendants of the IRA holder, and entities in which the IRA holder holds a controlling equity or management interest.

Because the IRS treats cryptocurrencies, such as Bitcoins, as a capital asset, such as stocks or real estate, a retirement account is permitted to buy, sell, or hold cryptocurrencies, subject to the prohibited transaction rules found under Internal Revenue Code Section 4975(c).

Why use a Retirement Account to Invest in Cryptocurrencies?

When purchasing cryptocurrencies, such as Bitcoins, with a Self-Directed IRA or Solo 401(k) Plan, all income and gains generated by your pre-tax retirement account investment would generally flow back into the retirement account tax-deferred or tax-free in the case of a Roth IRA. Instead of paying tax on the gains of the crypto investment, tax is paid only at a later date or never at all, in the case of a Roth IRA, leaving the crypto investment to grow unhindered without tax.

How to Use Retirement Funds to Buy, Hold, or Sell Cryptocurrencies?

In general, the two most popular ways to purchase cryptocurrencies with retirement funds is through a Self-Directed IRA or Solo 401(k) Plan.  Below is a step-by-step summary of how to purchase cryptocurrencies with a Solo 401(k) Plan:

A Solo 401(k) Plan is a qualified retirement plan that is established by a business with no full-time employees other than the owners or their spouses.

  1. Establish a Self-Directed Solo 401(k) Plan.
  2. Rollover retirement funds, cash or in-kind, tax-free to new Solo 401(k) Plan account.
  3. You, as trustee of the Solo 401(k) Plan, will then have “Checkbook Control” over all the assets/funds in the plan to make the cryptocurrency investment.
  4. A cryptocurrency account could be opened in the name of the Solo 401(k) Plan or a special purpose LLC wholly owned by the Solo 401(k) Plan. Many investors seem to like using an LLC wholly owned by a 401(k) plan as a vehicle to own the cryptos as it generally helps expedite the account opening process at the more popular cryptocurrency exchanges.
  5. You, as trustee of Solo 401(k) Plan or manager of the LLC, if applicable, will then wire the 401(k) funds to the new cryptocurrency account opened at a crypto exchange. The account will be opened in the name of the Solo 401(k) Plan or the LLC, if applicable.
  6. The cryptos can then be held at the exchange or via an online or offline wallet.
  7. Since a 401(k) plan is a tax-exempt qualified retirement plan, all income and gains from the cryptocurrency investment would flow back to the Solo 401(k) Plan tax-deferred or tax-free in the case of a Roth Solo 401(k) account. Whereas, a special purpose LLC wholly owned by a 401(k) plan would be treated as a disregarded entity for tax purposes. No Federal income tax return is required to be filed, although, some states may impose filing or franchise taxes on the LLC. Accordingly, in general, all income and gains from the cryptocurrency investment should flow back to the 401(k) plan without tax. One should consult with their tax advisor to better understand the implications of using a special purpose LLC wholly owned by a 401(k) plan to purchase cryptocurrencies.

Cryptocurrency investments, such as Bitcoins, are risky and highly volatile.  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 using a Solo 401(k) to invest in cryptocurrencies, please contact us @ 800.472.0646.

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Dec 11

IRA Financial Group Releases Cryptocurrency E-Info Kit for Solo 401(K) Plan Investors

New Bitcoin E-Kit will help investors understand how to purchase cryptocurrencies with 401(k) funds

IRA Financial Group, the leading provider of self-directed IRA LLC and Solo 401(k) Plans, announces the launch of a new Cryptocurrency E-Info Kit. The free cryptocurrency information kit will help retirement account holders looking to purchase cryptocurrencies, such as Bitcoins, with their retirement accounts to better understand what is involved in the process. “The IRA Financial Group Crypto E-Info Kit will help guide retirement account holders looking to use a Solo 401(k) plan to buy cryptocurrencies, such as bitcoins,” stated Adam Bergman, a partner with the IRA Financial Group.

IRA Financial Group’s Crypto 401(k) platform with checkbook control will allow retirement account holders to buy, sell, or hold Bitcoins and other cryptocurrency assets and generate tax-deferred or tax-free gains, in the case of a Roth Solo 401(k). The primary advantage of using a Solo 401(k) to make Bitcoin investments is that all income and gains associated with the 401(k) investment grow tax-deferred.IRA Financial Group Releases Cryptocurrency E-Info Kit for Solo 401(K) Plan Investors

IRA Financial Group is the market’s leading provider of self-directed retirement plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent. The IRA Financial Trust Company, a self-directed IRA custodian, was founded by Adam Bergman, a partner with the IRA Financial Group.

IRA Financial Group is the market’s leading provider of self-directed retirement plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate without custodian consent.

Adam Bergman, IRA Financial Group partner, has written six books the topic of self-directed retirement plans, including, “The Checkbook IRA”, “Going Solo,” Turning Retirement Funds into Start-Up Dreams, Solo 401(k) Plan in a Nutshell, Self-Directed IRA in a Nutshell, and in God We Trust in Roth We Prosper.

To learn more about the IRA Financial Group please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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Sep 27

IRA Financial Group Introduces New Solo 401(k) Plan Bitcoin Solution For Retirement Account Investors

Solo 401(k) Plan option offers retirement account holders the ability to trade or hold Bitcoins and other cryptocurrency without tax

IRA Financial Group, the leading provider of Solo 401(k) Plan solutions, is proud to announce the introduction of the Bitcoin Solo 401(k) Plan option to all retirement account holders. IRA Financial Group’s Bitcoin Solo 401(k) Plan solution will allow retirement account holders to buy, sell, or hold Bitcoins and other cryptocurrency assets and generate tax-deferred or tax-free gains, in the case of a Roth Solo 401(k) Plan. “Bitcoins have become a popular investment diversification option for many of our Solo 401(k) Plan investors in 2017, who are interested in using a tax-efficient manner to buy and sell Bitcoins,” stated Adam Bergman, a partner with the IRA Financial Group.

IRA Financial Group Introduces New Solo 401(k) Plan Bitcoin Solution For Retirement Account InvestorsAccording to Mr. Bergman, IRA Financial Group’s Solo 401(k) Plan Bitcoin solution is so attractive to Bitcoin investors because it gives them the control to buy, hold, or sell Bitcoins themselves. The primary advantage of using a Solo 401(k) Plan to make Bitcoin investments is that all income and gains associated with the Solo 401(k) investment grow tax-deferred or tax-free, in the case of a Roth Solo 401(k).

IRA Financial Group’s Bitcoin Solo 401(k) Plan for cryptocurrency investors is an IRS approved structure that allows one to use their retirement funds to make Bitcoin and other investments tax-free and without custodian consent.

IRA Financial Group is the market’s leading provider of self-directed retirement plans. IRA Financial Group has helped thousands of clients take back control over their retirement funds while gaining the ability to invest in almost any type of investment, including real estate, without custodian consent.

Adam Bergman, IRA Financial Group partner, has written six books on the topic of self-directed retirement plans, including, “The Checkbook IRA”, “Going Solo”, “Turning Retirement Funds into Start-Up Dreams”, “Solo 401(k) Plan in a Nutshell”, “Self-Directed IRA in a Nutshell”, and “In God We Trust in Roth We Prosper”. Mr. Bergman is also the founder of The IRA Financial Trust Company, a Self-Directed IRA custodian.

To learn more about the IRA Financial Group, please visit our website at http://www.irafinancialgroup.com or call 800-472-0646.

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Jul 12

New Podcast – Using a Solo 401k to Buy Bitcoins and Cryptocurrency

IRA Financial Group’s Adam Bergman discusses how to use a Solo 401k Plan to buy Bitcoins and Cryptocurrency, as interest in virtual currency continues to increase.

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Jun 28

Cryptocurrencies, Such as Bitcoin, Offer Opportunities for Solo 401k Investors

For a growing number of investors, cryptocurrency is not only the future of money, but also an attractive and potentially profitable investment asset, though highly risky and volatile.  Bitcoin has become the public’s most visible and popular cryptocurrency and it is also among the oldest, having first emerged in 2009.  Over one year, the market capitalization for bitcoin has increased enormously, from around $7.16 billion in May 2016 to $27.9 billion today.  As the price of bitcoin has risen over the last year or so, so has the confidence among investors, including retirement account investors.

Cryptocurrencies, Such as Bitcoin, Offer Opportunities for Solo 401k InvestorsThe process of buying cryptocurrency is still somewhat unclear for a lot of people. It’s not a stock or a traditional investment.  For most people in the U.S., Coinbase would be the easiest option to buy cryptocurrency, such as bitcoin, Ethereum, or Litecoin.  After verifying the account, the investor can add a number of payment methods including credit or debit cards, U.S. bank accounts, or even wire transfers of funds.  Cryptocurrency transactions are not anonymous and the identify of the currency owner can be traced back to a real-world identity.

As a cryptocurrency, bitcoin is generated through the process of “mining”—essentially using your computer’s processing power to solve complex algorithms called “blocks.”  One can buy and sell bitcoin on an exchange, much like a physical currency exchange, converting wealth from bitcoin to US dollars to other national currencies, back to dollars or bitcoin. And that’s how money is made.

Even though bitcoin is labeled as a “cryptocurrency”, from a federal income tax standpoint, bitcoin and other cryptocurrency are not considered a “currency”.  On March 25, 2014, the IRS issued Notice 2014-21, which, for the first time, set forth the IRS position on the taxation of virtual currencies, such as bitcoin.  According to the IRS Notice, “Virtual currency is treated as property for U.S. federal tax purposes.” The Notice further stated “General tax principles that apply to property transactions apply to transactions using virtual currency.”  In other words, the IRS is treating the income or gains from the sale of a virtual currency, such as bitcoin, as a capital asset, subject to either short-term (ordinary income tax rates) or long term capital gains tax rates, if the asset is held greater than twelve months (15% or 20% tax rates based on income).  By treating bitcoins and other virtual currencies as property and not currency, the IRS is imposing extensive record-keeping rules—and significant taxes—on its use.

The IRS tax treatment of virtual currency has created a favorable tax environment for retirement account investors.  In general, when a retirement account generates income or gains from the purchase and sale of a capital asset, such as stocks, mutual funds, real estate, etc., irrespective of whether the gain was short-term (held less than twelve months) or long-term (held greater than twelve months), the retirement account does not pay any tax on the transaction and any tax would be deferred to the future when the retirement account holder takes a distribution (in the case of a Roth 401(k) plan no tax would be due if the distribution is qualified).  Hence, using retirement funds to invest in cryptocurrencies, such as bitcoin, could allow the investor to defer or even eliminate in the case of a Roth, any tax due from the investment.  Note – retirement account investors interested in mining bitcoins versus trading, could become subject to the unrelated business taxable income tax rules if the “mining” constituted a trade or business.

As I mentioned earlier, cryptocurrency investments, such as bitcoin, are risky and highly volatile.  Any investor interested in learning more about bitcoin should do their due diligence and proceed with caution.

With an IRA Financial Group Solo 401(k) plan, you have an exciting opportunity to invest in cryptocurrencies.  For more information, please contact us @ 800.472.0646.

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