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Author Topic: How and why to hold bitcoins in your Roth IRA (yes, you can do it today!)  (Read 16699 times)
jzcjca00
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January 03, 2014, 06:01:07 AM
Last edit: January 04, 2014, 10:25:37 PM by jzcjca00
 #1

If you pay U.S. taxes, you need to be aware that it is possible TODAY to hold bitcoins in your Roth IRA, and there are important tax advantages for doing so!

Most people think that you can only hold stocks and mutual funds in an IRA, and many bitcoin fans are anxiously waiting for approval so they can invest retirement funds in bitcoin through the Winklevoss ETF.  What they do not realize is that there is already a way to hold bitcoins in IRAs today!

It takes some effort and expense, but anyone can set up an "IRA LLC," which allows you to hold MANY different types of alternative investments, including bitcoins.  It's 100% legal.

There are companies that (for around $1500) will help you set up a self-directed IRA (traditional, Roth, etc.), plus an IRA legal liability company (IRA LLC) for managing the investments.  Your IRA is the sole owner of the LLC, and you are the manager.  Your IRA LLC can invest in a wide variety of things, like real estate, gold, silver, and even bitcoins.

It's not a trivial undertaking.  There are a few things you cannot invest in (life insurance, collectibles, etc.), and there are certain kinds of transactions that are prohibited.  But you can buy and sell bitcoins on exchanges, hold them in cold storage, etc.  And the tax advantages make it worth the effort and expense.

In particular, if the price of bitcoin increases substantially, a Roth IRA LLC can completely eliminate capital gains taxes, so if you do become a Bitcoin millionaire, you don't have to pay half of it to the U.S. government.

If you have thousands of dollars worth of bitcoins, you should consider using an IRA LLC to make sure you get to keep the gains!

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January 03, 2014, 06:30:40 AM
 #2

The problem is that you can not directly transfer your bitcoin to your IRA.
Your funds have to go to your custodian first, before it can go into your LLC.

Otherwise, you are self-dealing, and will lose the tax advantage of the IRA
jzcjca00
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January 03, 2014, 02:30:44 PM
 #3

The problem is that you can not directly transfer your bitcoin to your IRA.
Your funds have to go to your custodian first, before it can go into your LLC.

Otherwise, you are self-dealing, and will lose the tax advantage of the IRA

Yes, the self-dealing prohibition does increase the effort, but I wouldn't characterize it as "the" problem.  It is one of many issues to work around, but the tax advantages make it worth the effort.

The government severely restricts your ability to put money into or take money out of any IRA, and the restrictions on self-dealing are to prevent people from circumventing those rules.

So in order to move bitcoins from personal accounts, you must sell them in your personal accounts, pay tax on the capital gains up to that point, contribute the remaining dollars to your IRA (subject to strict limits), invest that cash into the IRA LLC, then buy bitcoins there.  You wind up paying fees and experiencing delays along the way, and the price is likely to rise between the time you sell and when you manage to buy back in.  But remember this: once you have accomplished this, as long as you follow the Roth IRA rules, you will never be taxed on future gains!

Imagine you currently have $50,000 invested in mutual funds in a Roth IRA, plus bitcoins in your non-IRA funds which have recently grown to be worth $50,000.  Say you decide to move half of those bitcoins into the Roth IRA to avoid taxes on future gains.  You open a self-directed Roth IRA and create an IRA LLC, sell $26,000 of the mutual funds, transfer that cash to the new Roth IRA, then to the IRA LLC, then to an exchange, then buy bitcoins.  Then you sell that same number of bitcoins in your personal accounts and pay tax on the gains up to that point.  You're still paying fees all along the way, but at least by doing it in that order, you won't miss any major bitcoin rallies while waiting for slow fiat money transfers.

Imagine that by the time you reach age 59.5, those bitcoins are worth 2.5 million dollars.  You will be able to withdraw them from your Roth IRA completely tax-free, saving almost a million dollars in capital gains taxes!

When you invest in bitcoins outside of a Roth IRA, you take 100% of the risk, but you set yourself up for only receiving a portion of the potential reward because of future capital gains taxes.  I say it's worth some effort and expense today to avoid those future taxes.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 03, 2014, 02:51:22 PM
Last edit: December 28, 2014, 12:23:24 PM by jzcjca00
 #4

The percentage of your holdings to put in a Roth IRA depends on your age and how likely you are to want to access that money before you reach retirement age.

If you are young, you probably only need a smallish number of bitcoins in the IRA.  By the time you reach retirement age, their value will probably either have grown a whole lot, or they won't be worth much at all.  So a small investment in a Roth IRA today either means a very comfortable retirement or a small loss.  At some point making a larger investment multiplies the risk without significantly improving the outcome.  Your retirement won't be that much different if you're worth $100 million instead of just $10 million.

However, the rules of the Roth IRA allow unlimited, tax-free withdrawals once you reach age 59 1/2 (as long as you have had any Roth IRA account for at least 5 years).  So if you're already that age, or are willing to wait until that age to touch the money, you would want to put most of your coins into the Roth and avoid all those capital gains taxes!

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January 03, 2014, 03:14:49 PM
 #5

The percentage of your holdings to put in a Roth IRA depends on your age and how likely you are to want to access that money before you reach retirement age.

If you are young, you probably only need a smallish number of bitcoins in the IRA.  By the time you reach retirement age, their value will probably either have grown a whole lot, or they won't be worth much at all.  So a small investment in a Roth IRA today either means a very comfortable retirement or a small loss.  At some point making a larger investment multiplies the risk without significantly improving the outcome.  Your retirement won't be that much different if you're worth $100 million instead of just $10 million.

However, the rules of the Roth IRA allow unlimited, tax-free deductions once you reach age 59 1/2 (as long as you have had any Roth IRA account for at least 5 years).  So if you're already that age, or are willing to wait until that age to touch the money, you would want to put most of your coins into the Roth and avoid all those capital gains taxes!

Fair enough, but this is different than moving your already existing bitcoins into an account you control (*cough* money laundering).
As you stated previously, you can only invest what you're allowed to contribute, which are qualified funds subjected to the IRS's contribution limits, or funds you have already invested in IRAs or another retirement account previously.
So that's $5500 of earned income if you're under 50

Then again, I've already been doing this via IRA financial group (in a roth so I'm not hit by a tax penalty if I had mis-characterized my funds/made a mistake).
There are cheaper options but I'm only using my contribution limits for one year.
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January 03, 2014, 04:04:39 PM
 #6

The problem is that you can not directly transfer your bitcoin to your IRA.
Your funds have to go to your custodian first, before it can go into your LLC.

Otherwise, you are self-dealing, and will lose the tax advantage of the IRA

Yes, the self-dealing prohibition does increase the effort, but I wouldn't characterize it as "the" problem.  It is one of many issues to work around, but the tax advantages make it worth the effort.

The government severely restricts your ability to put money into or take money out of any IRA, and the restrictions on self-dealing are to prevent people from circumventing those rules.

So in order to move bitcoins from personal accounts, you must sell them in your personal accounts, pay tax on the capital gains up to that point, contribute the remaining dollars to your IRA (subject to strict limits), invest that cash into the IRA LLC, then buy bitcoins there.  You wind up paying fees and experiencing delays along the way, and the price is likely to rise between the time you sell and when you manage to buy back in.  But remember this: once you have accomplished this, as long as you follow the Roth IRA rules, you will never be taxed on future gains!

Imagine you currently have $50,000 invested in mutual funds in a Roth IRA, plus bitcoins in your non-IRA funds which have recently grown to be worth $50,000.  Say you decide to move half of those bitcoins into the Roth IRA to avoid taxes on future gains.  You open a self-directed Roth IRA and create an IRA LLC, sell $26,000 of the mutual funds, transfer that cash to the new Roth IRA, then to the IRA LLC, then to an exchange, then buy bitcoins.  Then you sell that same number of bitcoins in your personal accounts and pay tax on the gains up to that point.  You're still paying fees all along the way, but at least by doing it in that order, you won't miss any major bitcoin rallies while waiting for slow fiat money transfers.

Imagine that by the time you reach age 59.5, those bitcoins are worth 2.5 million dollars.  You will be able to withdraw them from your Roth IRA completely tax-free, saving almost a million dollars in capital gains taxes!

When you invest in bitcoins outside of a Roth IRA, you take 100% of the risk, but you set yourself up for only receiving a portion of the potential reward because of future capital gains taxes.  I say it's worth some effort and expense today to avoid those future taxes.

If you hold for a year and make less than $72,000 joint ($36,000 single) in non-long-term-gain salary then you also pay no capital gains taxes.

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January 03, 2014, 04:06:08 PM
 #7

1.  For those in their twenties, jobless, living in their mother's basement, a Roth IRA is not a high priority.

2.  Those who have been working for a while probably already have some money in a Roth, or in another type of retirement account that can be converted to a Roth.

3.  Even someone with no retirement accounts can benefit.  Consider a person who is 50 years old, with no savings, no retirement accounts, and a low-paying job.  By giving up cigarettes and beer for a year (and you know that poor people always have cigarette and beer money), they could save enough to create a Roth IRA LLC and buy at least 4 BTC, which might be worth $400K by the time they reach age 59 1/2.  (If they don't do it, it's not because it's impossible, but because they are not sufficiently motivated.  If they choose to smoke, drink, and be poor, there is nothing we can do.)

You don't need to invest a huge amount.  If bitcoin goes up by a factor of 100 by the time you retire, then $50,000 today would turn into $5 million then.

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January 03, 2014, 04:15:28 PM
 #8

Of course, the usual disclaimers apply to everything I say.  Do not consider this to be investment or legal advice.  Always consult a qualified and overpaid CPA and tax attorney before making any investment or just sitting there with your teeth in your mouth and not investing.  Always consult a doctor before not starting any exercise program.

Bitcoin is risky and volatile, and you could lose 100% of your investment, which explains why SecondMarket has only sold about $70 million worth to rich people.  Past performance does not guarantee future gain, although generally speaking, the trend is your friend.

Only invest money you can afford to lose.  Do not invest in Bitcoin if you are unwilling to accept the risks of either becoming filthy rich or losing your entire investment.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 03, 2014, 04:21:38 PM
 #9

If you hold for a year and make less than $72,000 joint ($36,000 single) in non-long-term-gain salary then you also pay no capital gains taxes.

Is this a new thing, because that didn't used to be true.  Are you sure it is based only on your non-long-term-gain income?

How can we be sure it will be true in the future?  Those tax rates and rules change almost every year!

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 03, 2014, 06:05:35 PM
 #10

I think I may be on the wrong site.  At this site, one person asks if the price will ever go above $X, and 40 people answer, "to da effin moon!"  Then it turns into 17 pages of pumping the latest hamstercoin.  Meanwhile, a serious post about how to avoid taxes on capital gains gets very few responses.

Can someone please direct me to the Bitcoin forum for grownups?

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
BitchicksHusband
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January 03, 2014, 06:31:44 PM
 #11

If you hold for a year and make less than $72,000 joint ($36,000 single) in non-long-term-gain salary then you also pay no capital gains taxes.

Is this a new thing, because that didn't used to be true.  Are you sure it is based only on your non-long-term-gain income?

How can we be sure it will be true in the future?  Those tax rates and rules change almost every year!

This is not a new thing.  It has been for years (since 2008).  See the table here for the rates:

https://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States#Deferment_strategies


The qualifications for the tax brackets are here:

https://origin.bankrate.com/finance/taxes/tax-brackets.aspx


"Ordinary income is usually characterized as income other than {long-term} capital gain." {Brackets mine}  I have confirmed with my tax adviser that short-term capital gains ARE ordinary income, long-term are not.

https://en.wikipedia.org/wiki/Ordinary_income


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January 03, 2014, 06:32:24 PM
 #12

I think I may be on the wrong site.  At this site, one person asks if the price will ever go above $X, and 40 people answer, "to da effin moon!"  Then it turns into 17 pages of pumping the latest hamstercoin.  Meanwhile, a serious post about how to avoid taxes on capital gains gets very few responses.

Can someone please direct me to the Bitcoin forum for grownups?


Seriously.  I feel the same way sometimes.

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January 03, 2014, 06:34:34 PM
 #13

Of course, the usual disclaimers apply to everything I say.  Do not consider this to be investment or legal advice.  Always consult a qualified and overpaid CPA and tax attorney before making any investment or just sitting there with your teeth in your mouth and not investing.  Always consult a doctor before not starting any exercise program.

Bitcoin is risky and volatile, and you could lose 100% of your investment, which explains why SecondMarket has only sold about $70 million worth to rich people.  Past performance does not guarantee future gain, although generally speaking, the trend is your friend.

Only invest money you can afford to lose.  Do not invest in Bitcoin if you are unwilling to accept the risks of either becoming filthy rich or losing your entire investment.

Ditto.

1BitcHiCK1iRa6YVY6qDqC6M594RBYLNPo
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January 03, 2014, 06:39:53 PM
 #14

How can we be sure it will be true in the future?  Those tax rates and rules change almost every year!

We can't be sure of the future, but congress missed the deadline to change it for 2014.  So up through April 2015 taxes, we're still good.  For Bitcoin, this bit of laziness is probably everything, since I think we will go almost to the top of the S curve this year.

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January 03, 2014, 09:14:12 PM
 #15

Of course, the usual disclaimers apply to everything I say.  Do not consider this to be investment or legal advice.  Always consult a qualified and overpaid CPA and tax attorney before making any investment or just sitting there with your teeth in your mouth and not investing.  Always consult a doctor before not starting any exercise program.

Bitcoin is risky and volatile, and you could lose 100% of your investment, which explains why SecondMarket has only sold about $70 million worth to rich people.  Past performance does not guarantee future gain, although generally speaking, the trend is your friend.

Only invest money you can afford to lose.  Do not invest in Bitcoin if you are unwilling to accept the risks of either becoming filthy rich or losing your entire investment.


SecondMartket -only- $70MM (I think its $35-40MM of actual new $'s)??  Their goal was $10MM by year's end.  I think they sold way more than anyone thought they could sell in such a short amount of time.  And of course because they did so well others are jumping aboard the bandwagon.  Fortress will have their trust up and running shortly is my guess.  Second Market proved that accredited investors do want to own even in the fairly early stages.

And of course, a really easy way to own coin in an IRA or Roth. Smiley


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January 03, 2014, 09:14:27 PM
 #16

I think I may be on the wrong site.  At this site, one person asks if the price will ever go above $X, and 40 people answer, "to da effin moon!"  Then it turns into 17 pages of pumping the latest hamstercoin.  Meanwhile, a serious post about how to avoid taxes on capital gains gets very few responses.

Can someone please direct me to the Bitcoin forum for grownups?


Seriously.  I feel the same way sometimes.

Maybe I should change this thread's title to, "This is how much BFL sucks" to get more people to read it.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 03, 2014, 11:51:38 PM
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Thank you for this timely thread.
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January 04, 2014, 01:49:00 AM
Last edit: January 04, 2014, 02:01:40 AM by CygnusX1
 #18

Thank you +1

Unless rolling over, this is limited to $5500/yr though correct?
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January 04, 2014, 02:15:41 AM
 #19

Aren't long term capital gains (meaning the assets are held for at least a year) taxed at 20%?
Could be a lot of work/limitations to save the 20%....
But it is an interesting idea.
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January 04, 2014, 03:49:29 AM
 #20

Thank you +1

Unless rolling over, this is limited to $5500/yr though correct?

Yes, unless you are over 50, in which case the limit is $6500 per year.  I don't think there is any limit to the size of transfers, rollovers, and conversions.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 04, 2014, 02:41:11 PM
 #21

Thank you +1

Unless rolling over, this is limited to $5500/yr though correct?

Yes, unless you are over 50, in which case the limit is $6500 per year.  I don't think there is any limit to the size of transfers, rollovers, and conversions.

This is correct.  There are no limits for the size of transfers.  Roth conversions used to have an income limit (you make to much you couldn't do it) but that went away a few years back.  Anyone can convert IRA funds to a Roth IRA regardless of income these days.  Powerful investment option for the super wealthy if you believe in the potential exponential growth in Bitcoin.  Imagine having $100k in Bitcoin right now in a Roth.  Grows to $1MM, $10MM, no taxes, ever.  Nice thoughts. Smiley


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January 04, 2014, 04:34:49 PM
 #22

Really wish I had known this sooner. I liquidated my IRA last year to buy bitcoin but I withdrew the funds. I figured the penalties would be worth it (and it is) but now I am limited to contribute back with this method.
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January 04, 2014, 05:20:45 PM
 #23

Really wish I had known this sooner. I liquidated my IRA last year to buy bitcoin but I withdrew the funds. I figured the penalties would be worth it (and it is) but now I am limited to contribute back with this method.

That's what frustrates me about this forum.  Too much inane chatter, and not enough intelligent discussion.

The stats say I've spent 100 hours reading this forum, yet I had to discover the Roth IRA LLC idea somewhere else.  I'm obviously wasting my time looking for useful information here.

You can still do the Roth IRA LLC thing with a portion of your coins.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 04, 2014, 05:38:46 PM
 #24

I definately will. I will get the ball rolling this week.

I should probably tip you for this advice that could save me much money down the road.  Grin
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January 04, 2014, 10:27:06 PM
 #25

Well I know there is a lot of noise here but this is a good thread so BUMP. Anyway, I plan on doing this at least once, with a sense of urgency this year so thanks again for adding this thread to the forum.
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January 04, 2014, 10:27:36 PM
 #26

I should probably tip you for this advice that could save me much money down the road.  Grin

That is very kind indeed.   Smiley  I've sent some tips, but I've never received one myself.

I just set up this new tip address: 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 05, 2014, 12:18:52 AM
 #27

I definately will. I will get the ball rolling this week.

I should probably tip you for this advice that could save me much money down the road.  Grin

Just make sure you read his first post!  I think it's a great idea.  But it isn't cheap.  And I wouldn't try it on your own without a CPA involved.  You have to be real careful of any self dealing or self interest in setting up an IRA/Roth IRA like this.  And if it's just regular Roth you're limited to a $5,500 investment each year.  Unless of course you still have some IRA/401k money, then roll into this and convert any amount you like.

Good luck!!



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jzcjca00
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January 05, 2014, 04:33:44 AM
 #28

I should probably tip you for this advice that could save me much money down the road.  Grin

Thanks for the generous tip!  That's a first for me!

If you do go the IRA LLC route, let me know how it works out.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 05, 2014, 04:37:45 AM
 #29

I definately will. I will get the ball rolling this week.

I should probably tip you for this advice that could save me much money down the road.  Grin

Just make sure you read his first post!  I think it's a great idea.  But it isn't cheap.  And I wouldn't try it on your own without a CPA involved.  You have to be real careful of any self dealing or self interest in setting up an IRA/Roth IRA like this.  And if it's just regular Roth you're limited to a $5,500 investment each year.  Unless of course you still have some IRA/401k money, then roll into this and convert any amount you like.

Good luck!!

I absolutely agree.  It's not cheap.  It's not effortless.  There are restrictions on what you're allowed to do, and the penalties can be severe if you break the rules.  Be careful!

However, if bitcoin really explodes, depending on the size of your investment, this could potentially save you hundreds of thousands of dollars in capital gains taxes.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 05, 2014, 07:13:49 AM
 #30

Very cool

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January 05, 2014, 03:59:11 PM
 #31

Really wish I had known this sooner. I liquidated my IRA last year to buy bitcoin but I withdrew the funds. I figured the penalties would be worth it (and it is) but now I am limited to contribute back with this method.

That's what frustrates me about this forum.  Too much inane chatter, and not enough intelligent discussion.

The stats say I've spent 100 hours reading this forum, yet I had to discover the Roth IRA LLC idea somewhere else.  I'm obviously wasting my time looking for useful information here.

You can still do the Roth IRA LLC thing with a portion of your coins.

Seriously, this would have been a lot more valuable back when BTC was $5, or $0.05. Oh well, we probably have at least 50-100x left to grow.
jzcjca00
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January 05, 2014, 04:12:04 PM
 #32

Seriously, this would have been a lot more valuable back when BTC was $5, or $0.05. Oh well, we probably have at least 50-100x left to grow.

Yes, I certainly wish I had heard about it a lot sooner!

This option has been available for decades.  My question is, why hasn't bitcointalk been abuzz about it?  Why did I have to learn about it elsewhere?  What else am I missing out because of spending so much time on this forum?

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 05, 2014, 06:10:40 PM
Last edit: January 05, 2014, 06:54:26 PM by kellrobinson
 #33

This hits very close to home.
I'm in my late fifties, and started buying bitcoins less than a year ago.  Unfortunately, I made redemptions from my Roth IRA's in order to buy the coins.  Now I have over 100 btc:  in dollar value, most of it's capital gains.  It will take quite some time, at $6500 per year, to put this 100 btc into IRA's; in fact, with btc growing so fast, I may never catch up!

Now, I didn't liquidate my IRA's completely and I still have a substantial amount of dollar-denominated assets in them, so my  present strategy should be to get a Roth LLC going as fast as possible and roll over my Roths into it.  At some point I have to buy btc with those funds; I'll have to go back and reread this thread and do some more research about exactly how that works under the law.

Say I get my IRA LLC set up, roll over a bunch of money into it, and then buy bitcoins.  From coinbase, for example.  Then I may want to take them out of coinbase and put them someplace where I control my own private keys.  Like a paper wallet or a brain wallet.  That will mean the btc effectively disappears from view.  Would that be a problem?

edit:  Just found this:  IRS regulations require that either a qualified trustee, or custodian, hold the IRA assets on behalf of the IRA owner (wikipedia on self-directed IRA)
and this, on using an LLC:  "In short, the IRS has not expressly approved this practice and legal authorities have concluded this practice likely violates United States tax law.
The companies making money from using an LLC for a self-directed IRA are promoting the idea online and attempting to justify it under the law with pseudo legal research. However, our legal conclusion from our own legal research is using an LLC for a self-directed IRA is likely illegal."  (from http://thompsonhall.com/ira-llc-how-to-use-an-llc-for-a-self-directed-ira/)

So...   it looks like this thread has been pretty one-sided.  Lots of rah-rah enthusiasm, wishful thinking even, but not so much attention to real world facts.
If I can't be my own custodian, and it looks like IRS says I can't, what's next?  Looks like I have to find a "qualified trustee/custodian," and this custodian has to be willing to handle btc.
Best outcome would be to find some way to be your own custodian legally.  Has anybody really done due diligence on that?

another edit:  The self-directed IRA wikipedia page has this, which is somewhat reassuring:  
A number of tax attorneys believe that this IRA LLC strategy has been legitimized through a tax court case: Swanson v. Commissioner, 106 T.C. 76 (1996) and IRS Field Service Advice Memorandum 200128011, which mirrors the facts and confirms the Tax Court’s conclusion in Swanson.[21]
Since Swanson, the validity of the self-directed IRA LLC structure has not been questioned by the IRS.[22] In fact, on October 29, 2013, the Tax Court in T.L. Ellis, TC Memo. 2013-245, Dec. 59,674(M), held that establishing a special purpose limited liability company (“LLC”) to make an investment did not trigger a prohibited transaction, as a newly established LLC cannot be deemed a disqualified person pursuant to Internal Revenue Code Section 4975.

There's more stuff in a paragraph titled "IRA LLC law," which I don't really understand.
This is new ground.
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January 05, 2014, 07:01:35 PM
 #34

Most of the restrictions seem to be with double dealing and complicated lending. If you just used it to hold bitcoin then I dont think there would be much to worry about.
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January 05, 2014, 07:36:52 PM
 #35

If you pay U.S. taxes, you need to be aware that it is possible TODAY to hold bitcoins in your Roth IRA, and there are important tax advantages for doing so!

Most people think that you can only hold stocks and mutual funds in an IRA, and many bitcoin fans are anxiously waiting for approval so they can invest retirement funds in bitcoin through the Winklevoss ETF.  What they do not realize is that there is already a way to hold bitcoins in IRAs today!

It takes some effort and expense, but anyone can set up an "IRA LLC," which allows you to hold MANY different types of alternative investments, including bitcoins.  It's 100% legal.

There are companies that (for around $1500) will help you set up a self-directed IRA (traditional, Roth, etc.), plus an IRA legal liability company (IRA LLC) for managing the investments.  Your IRA is the sole owner of the LLC, and you are the manager.  Your IRA LLC can invest in a wide variety of things, like real estate, gold, silver, and even bitcoins.

It's not a trivial undertaking.  There are a few things you cannot invest in (life insurance, collectibles, etc.), and there are certain kinds of transactions that are prohibited.  But you can buy and sell bitcoins on exchanges, hold them in cold storage, etc.  And the tax advantages make it worth the effort and expense.

In particular, if the price of bitcoin increases substantially, a Roth IRA LLC can completely eliminate capital gains taxes, so if you do become a Bitcoin millionaire, you don't have to pay half of it to the U.S. government.

If you have thousands of dollars worth of bitcoins, you should consider using an IRA LLC to make sure you get to keep the gains!

If you found this post helpful, tips are appreciated to 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc.


jzcjca00,

Is selling my current bitcoins necessary in order to purchase bitcoins into new LLC Roth IRA?
It seems that selling bitcoins that I held for a while leaves me with fiat that I cannot put into the first Roth IRA
due to contribution limits.

Can I just open LLC Roth with fiat from the sale of mutual funds (from your example)?

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January 05, 2014, 08:25:37 PM
 #36

This hits very close to home.
I'm in my late fifties, and started buying bitcoins less than a year ago.  Unfortunately, I made redemptions from my Roth IRA's in order to buy the coins.  Now I have over 100 btc:  in dollar value, most of it's capital gains.  It will take quite some time, at $6500 per year, to put this 100 btc into IRA's; in fact, with btc growing so fast, I may never catch up!

Now, I didn't liquidate my IRA's completely and I still have a substantial amount of dollar-denominated assets in them, so my  present strategy should be to get a Roth LLC going as fast as possible and roll over my Roths into it.  At some point I have to buy btc with those funds; I'll have to go back and reread this thread and do some more research about exactly how that works under the law.

Say I get my IRA LLC set up, roll over a bunch of money into it, and then buy bitcoins.  From coinbase, for example.  Then I may want to take them out of coinbase and put them someplace where I control my own private keys.  Like a paper wallet or a brain wallet.  That will mean the btc effectively disappears from view.  Would that be a problem?

edit:  Just found this:  IRS regulations require that either a qualified trustee, or custodian, hold the IRA assets on behalf of the IRA owner (wikipedia on self-directed IRA)
and this, on using an LLC:  "In short, the IRS has not expressly approved this practice and legal authorities have concluded this practice likely violates United States tax law.
The companies making money from using an LLC for a self-directed IRA are promoting the idea online and attempting to justify it under the law with pseudo legal research. However, our legal conclusion from our own legal research is using an LLC for a self-directed IRA is likely illegal."  (from http://thompsonhall.com/ira-llc-how-to-use-an-llc-for-a-self-directed-ira/)

So...   it looks like this thread has been pretty one-sided.  Lots of rah-rah enthusiasm, wishful thinking even, but not so much attention to real world facts.
If I can't be my own custodian, and it looks like IRS says I can't, what's next?  Looks like I have to find a "qualified trustee/custodian," and this custodian has to be willing to handle btc.
Best outcome would be to find some way to be your own custodian legally.  Has anybody really done due diligence on that?

another edit:  The self-directed IRA wikipedia page has this, which is somewhat reassuring:  
A number of tax attorneys believe that this IRA LLC strategy has been legitimized through a tax court case: Swanson v. Commissioner, 106 T.C. 76 (1996) and IRS Field Service Advice Memorandum 200128011, which mirrors the facts and confirms the Tax Court’s conclusion in Swanson.[21]
Since Swanson, the validity of the self-directed IRA LLC structure has not been questioned by the IRS.[22] In fact, on October 29, 2013, the Tax Court in T.L. Ellis, TC Memo. 2013-245, Dec. 59,674(M), held that establishing a special purpose limited liability company (“LLC”) to make an investment did not trigger a prohibited transaction, as a newly established LLC cannot be deemed a disqualified person pursuant to Internal Revenue Code Section 4975.

There's more stuff in a paragraph titled "IRA LLC law," which I don't really understand.
This is new ground.

A lot of custodians will let you open up an IRA or Roth and hold alternative assets, gold and real estate are the two most popular but bitcoins are usually allowed.  Check with PENSCO, Entrust, & Equity Institutional as starters.   One or more of them should be able to do this for you.

This can be done.  I hold most of my bitcoins in an IRA.  I did it from rollover from a 401k account.


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January 05, 2014, 10:55:36 PM
 #37

If you pay U.S. taxes, you need to be aware that it is possible TODAY to hold bitcoins in your Roth IRA, and there are important tax advantages for doing so!

Most people think that you can only hold stocks and mutual funds in an IRA, and many bitcoin fans are anxiously waiting for approval so they can invest retirement funds in bitcoin through the Winklevoss ETF.  What they do not realize is that there is already a way to hold bitcoins in IRAs today!

It takes some effort and expense, but anyone can set up an "IRA LLC," which allows you to hold MANY different types of alternative investments, including bitcoins.  It's 100% legal.

There are companies that (for around $1500) will help you set up a self-directed IRA (traditional, Roth, etc.), plus an IRA legal liability company (IRA LLC) for managing the investments.  Your IRA is the sole owner of the LLC, and you are the manager.  Your IRA LLC can invest in a wide variety of things, like real estate, gold, silver, and even bitcoins.

It's not a trivial undertaking.  There are a few things you cannot invest in (life insurance, collectibles, etc.), and there are certain kinds of transactions that are prohibited.  But you can buy and sell bitcoins on exchanges, hold them in cold storage, etc.  And the tax advantages make it worth the effort and expense.

In particular, if the price of bitcoin increases substantially, a Roth IRA LLC can completely eliminate capital gains taxes, so if you do become a Bitcoin millionaire, you don't have to pay half of it to the U.S. government.

If you have thousands of dollars worth of bitcoins, you should consider using an IRA LLC to make sure you get to keep the gains!

If you found this post helpful, tips are appreciated to 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc.


jzcjca00,

Is selling my current bitcoins necessary in order to purchase bitcoins into new LLC Roth IRA?
It seems that selling bitcoins that I held for a while leaves me with fiat that I cannot put into the first Roth IRA
due to contribution limits.

Can I just open LLC Roth with fiat from the sale of mutual funds (from your example)?



Unless you are rolling over funds from an existing account then you are limited to depositing $5500/yr into the new IRA. You can buy more BTC with those funds.

I dont think there is any way to convert all of your current BTC assets over to the IRA if it exceeds the yearly contribution limit.

Unfortunately, you will be required to pay taxes on all of your BTC holdings unless they are already under a IRA LLC. No way around that. But the sooner you setup this kind of IRA then the more you can start contributing in this way and not have to worry about future taxes.

That is how I understand it, at least.
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January 05, 2014, 11:53:00 PM
 #38



A lot of custodians will let you open up an IRA or Roth and hold alternative assets, gold and real estate are the two most popular but bitcoins are usually allowed.  Check with PENSCO, Entrust, & Equity Institutional as starters.   One or more of them should be able to do this for you.

This can be done.  I hold most of my bitcoins in an IRA.  I did it from rollover from a 401k account.
Do you control the private keys?
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January 06, 2014, 12:03:54 AM
 #39

jzcjca00,

Is selling my current bitcoins necessary in order to purchase bitcoins into new LLC Roth IRA?
It seems that selling bitcoins that I held for a while leaves me with fiat that I cannot put into the first Roth IRA
due to contribution limits.

Can I just open LLC Roth with fiat from the sale of mutual funds (from your example)?

No, there is no requirement that you sell your existing bitcoins when you buy them in your retirement account.

I have about 10% of my net worth in bitcoins, and my goal is to keep it about the same.  Once my IRA LLC is funded, my goal will be to buy coins into the IRA LLC and sell the same number of coins from my personal stash at approximately the same time, hopefully not losing much in the exchange.

I believe that bitcoins are risky, so I don't want to put too many eggs into this one basket.  If it lives up to its potential, you don't need to own huge numbers of bitcoins to be set for life.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 06, 2014, 03:50:14 AM
 #40

Somebody in the bitcoin community needs to set up an IRA custodian specializing in cryptocurrency that doesn't charge an arm and a leg.  Is anybody out there listening?
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January 06, 2014, 01:37:56 PM
 #41

Somebody in the bitcoin community needs to set up an IRA custodian specializing in cryptocurrency that doesn't charge an arm and a leg.  Is anybody out there listening?

Those three I mentioned above all do a lot of alternatives in IRA's.  There's a reason they charge what they charge, there's a lot of risk to them holding these securities as trustee of your IRA/Roth.  Plus, in the scheme of things they really aren't make -that- much money.  I think PENSCO charges $100/yr plus some small asset based charge.  They aren't going to make commission or a management fee of of you in that IRA so that's their only fees.  It's expensive for $5,500 account, not so much for a $100k account. Smiley


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January 06, 2014, 02:58:21 PM
 #42

I have about 10% of my net worth in bitcoins, and my goal is to keep it about the same. 

If it lives up to its potential, you don't need to own huge numbers of bitcoins to be set for life.


While that's true, if you continually sell down your holdings to stay at 10% you'll never end up with a significant holding. Probably better to go with the SSS plan if you don't just plan to hold for the longest time. https://bitcointalk.org/index.php?topic=345065.0
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January 06, 2014, 03:54:16 PM
 #43

Aren't long term capital gains (meaning the assets are held for at least a year) taxed at 20%?
Could be a lot of work/limitations to save the 20%....
But it is an interesting idea.

It depends on your tax bracket.  Check the brackets above.  This is why I plan on retiring when bitcoin gets high enough because I get the same amount of money without going to work.

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January 06, 2014, 04:00:02 PM
 #44

I have about 10% of my net worth in bitcoins, and my goal is to keep it about the same. 

If it lives up to its potential, you don't need to own huge numbers of bitcoins to be set for life.


While that's true, if you continually sell down your holdings to stay at 10% you'll never end up with a significant holding. Probably better to go with the SSS plan if you don't just plan to hold for the longest time. https://bitcointalk.org/index.php?topic=345065.0

Be he's actually doing the proper asset allocation strategy, never hold all your eggs in one basket.  I'd bet most people on these forums are "all-in" or really close to all in on Bitcoins.  And that's fine.  It's gambling, but it's fine.  Most people suggest never have more than 5% in any given stock, bond, commodity etc.  While he is limiting is upside, he is also greatly limiting his downside.


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January 06, 2014, 04:29:58 PM
 #45



A lot of custodians will let you open up an IRA or Roth and hold alternative assets, gold and real estate are the two most popular but bitcoins are usually allowed.  Check with PENSCO, Entrust, & Equity Institutional as starters.   One or more of them should be able to do this for you.

This can be done.  I hold most of my bitcoins in an IRA.  I did it from rollover from a 401k account.
Do you control the private keys?

The government requires the "IRA custodian" to hold the assets.

If you find a custodian who will hold bitcoins for you, they would have the private keys.  I'm not sure there are any custodians currently willing to do that, and it makes me uncomfortable, anyway.

PENSCO, Entrust, & Equity Institutional have agreed to hold shares of the SecondMarket Bitcoin Investment Trust in IRA accounts, but I believe you must be an accredited investor, with net worth over a million dollars.  That makes it unreachable for most bitcoiners.

I'm suggesting a third option.  You need an IRA custodian (like IRA Services Trust Company) who is willing to hold your funds in the form of 100% ownership of an IRA LLC.  This IRA LLC is a company which you manage yourself, and it holds assets for you.  In the case of bitcoin, as the manager of the IRA LLC, you hold the private keys.  It is your responsibility to keep them safe and secure.

The IRA LLC does not require you to be a high net worth investor.  It does not require you to let someone else hold your private keys.  You are not limited to bitcoins.  You could also hold gold and silver.  Again, you would be responsible for keeping them safe.  Your IRA LLC can also hold real estate and thousands of other things.  As the manager of the LLC, it is your job to follow all the laws about IRA investments.

There is an important difference between you owning the bitcoins outright, and you managing a company that owns the bitcoins.  In both cases, you control them, but when they belong to the IRA LLC, you are not legally allowed to use them for your own personal benefit.  If you want to use those bitcoins to buy a new house or car or whatever for your own personal use, the laws require you to do a withdrawal through the IRA custodian first.

I am not a financial advisor.  Seek the advice of a qualified financial advisor, preferably one who knows something about bitcoins and IRA LLCs, before making any investment decisions.  

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 06, 2014, 06:39:30 PM
 #46

I think there's a conflict of interest in you having access to the private keys where you can use funds and replace them without anyone noticing.

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January 06, 2014, 07:05:37 PM
 #47

Custodians legally have to work within a traditional organization that is approved by the IRS?

Edit:

Looks like the answer is partially yes...?

http://www.irs.gov/Retirement-Plans/Approved-Nonbank-Trustees-and-Custodians
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January 06, 2014, 07:08:28 PM
 #48

Anyway, this proves early adopters should be rewarded. Some people have liquidated savings and retirement. High risk, high reward.

Damn I wish my vanguard ira supported it today before it's too late.

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January 06, 2014, 07:11:55 PM
 #49

Custodians legally have to work within a traditional organization that is approved by the IRS?

Yes.  Custodians are highly regulated usually by the federal government in some fashion, SEC, FINRA, etc.  Banks, financial companies, etc.


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January 06, 2014, 08:41:00 PM
 #50

Damn I wish my vanguard ira supported it today before it's too late.

The point of the OP is that you CAN do it today.  You do not need to wait for Vanguard, Fidelity, or anyone else to support it.  It just takes a modest effort and expense to set it up.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 06, 2014, 08:46:37 PM
 #51

Damn I wish my vanguard ira supported it today before it's too late.

The point of the OP is that you CAN do it today.  You do not need to wait for Vanguard, Fidelity, or anyone else to support it.  It just takes a modest effort and expense to set it up.

I agree. I don't think Vanguard will ever support this, not really in their mantra.  Fidelity did support buying the BIT for a little while but then decided against it.  Very few firms around the country, including the bigger boys like Morgan Stanley, Merrill Lynch, etc, will take the risk of holding alternative securities in an IRA.  Like jz says, you can do it today, it just takes some legwork!


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January 16, 2014, 06:16:19 PM
 #52

A lot of custodians will let you open up an IRA or Roth and hold alternative assets, gold and real estate are the two most popular but bitcoins are usually allowed.  Check with PENSCO, Entrust, & Equity Institutional as starters.   One or more of them should be able to do this for you.

This can be done.  I hold most of my bitcoins in an IRA.  I did it from rollover from a 401k account.
Am I correct to assume (in your case) they are custodian of the BIT and not actual bitcoins?
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January 16, 2014, 06:24:45 PM
 #53

Damn I wish my vanguard ira supported it today before it's too late.

The point of the OP is that you CAN do it today.  You do not need to wait for Vanguard, Fidelity, or anyone else to support it.  It just takes a modest effort and expense to set it up.

If there was a way to do it today then why hasn't anyone shared further details?  I've put in more then a modest effort and I have not found how this would be done thru most traditional institutions.
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January 17, 2014, 01:00:27 AM
 #54

Damn I wish my vanguard ira supported it today before it's too late.

The point of the OP is that you CAN do it today.  You do not need to wait for Vanguard, Fidelity, or anyone else to support it.  It just takes a modest effort and expense to set it up.

If there was a way to do it today then why hasn't anyone shared further details?  I've put in more then a modest effort and I have not found how this would be done thru most traditional institutions.

What details would you like?  The OP pretty much explained exactly what you need to do step by step.  Its not easy, buts not overly difficult either with the right people involved.  I googled IRA LLC and these guys popped up:

http://www.broadfinancial.com/self-directed-ira/ira-llc

I don't know anything about them nor am I affiliated with them but they specialized in alternative IRA holdings.  I use PENSCO personally.

Good luck!


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January 17, 2014, 01:08:40 AM
 #55

So you need to trust an unheard of financial institution who has crappy website design with your private keys?   Sad
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January 17, 2014, 02:31:46 AM
 #56

So you need to trust an unheard of financial institution who has crappy website design with your private keys?   Sad

No, absolutely not.  Go back and read this entire thread more carefully.  Then, if you don't understand something, ask me for clarification.  Don't just assume the worst.

This is not trivial to do, but a company like Broad Financial does the hard part, like creating the Operating Agreement for the LLC, etc.  Nevertheless, it will still take many hours of research and effort on your part.  (Reading this thread carefully can save many hours of research.) You have to decide whether the potential tax savings is worth the effort.

There are several different companies that can help you set up the IRA LLC.  If you don't like Broad Financial's website, pick another company.  However, they have given me great service.

Here's what they will do for you:
-- Help you open a Roth (or other kind of) IRA with IRA Services Trust Company as the custodian.
-- Help you fund that Roth IRA through a transfer, rollover, or contribution.
-- Help you create an IRA LLC in your state, including creating appropriate Articles of Organization, Operating Agreement, or whatever is needed in your state.
-- Help you get a federal EIN for the IRA LLC.
-- Help you set up the investment in your IRA LLC from your Roth IRA.

The IRA rules require the IRA custodian to hold the assets in your IRA, so they are the sole owner of your IRA LLC.  That ownership is the ONLY thing they hold.

You are the manager of the IRA LLC.  You control accounts at banks and exchanges, on behalf of the IRA LLC.  You buy and sell bitcoins on behalf of the IRA LLC.  You are solely responsible for securing the assets of the IRA LLC.  You set up cold storage and guard the private keys, on behalf of the IRA LLC.

Imagine if you were the CEO of Microsoft.  You control many assets, but you own none of them.  This is the same thing.  You are managing and securing assets that do not directly belong to you.

You will have the private keys, but you will NOT own the bitcoins.  The bitcoins will be owned by the IRA LLC, which is owned by IRA Services for the benefit of you.  If you want to cash out, you would have to sell the bitcoins on behalf of the IRA LLC, send the cash back to the IRA custodian, then request an IRA disbursement.  You have to follow the normal IRA disbursement rules or possibly face the normal IRA penalties and taxes.

This is not something for lazy people.  It's 1000 times more work than buying shares of an ETF.  You have to decide whether it's worth the expense and bother to save some money on taxes.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 17, 2014, 02:42:16 AM
 #57

Damn I wish my vanguard ira supported it today before it's too late.

The point of the OP is that you CAN do it today.  You do not need to wait for Vanguard, Fidelity, or anyone else to support it.  It just takes a modest effort and expense to set it up.

If there was a way to do it today then why hasn't anyone shared further details?  I've put in more then a modest effort and I have not found how this would be done thru most traditional institutions.

Perhaps those who have already done it are trying to keep it a secret.  Maybe they're afraid if too many people start doing it, the IRS will change the rules and disallow it.

I'm personally hoping that lots of libertarians will do it so that we can perhaps win some elections in the future and achieve liberty in our lifetime.


Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 17, 2014, 02:45:03 AM
 #58

Custodians legally have to work within a traditional organization that is approved by the IRS?

Yes.  Custodians are highly regulated usually by the federal government in some fashion, SEC, FINRA, etc.  Banks, financial companies, etc.

Just remember that n this case, the only asset the IRA custodian holds is 100% ownership of the IRA LLC.  They do not hold the bitcoins for you.  They don't have to know diddly squat about bitcoins.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 17, 2014, 08:52:54 AM
 #59

Why would I want bitcoins in my IRA? Assuming I ever make a huge "profit" from them I have no intention of paying any capital gains tax on any perceived 'gain' .. I will merely spend them into goods purchased such as bullion... the base purchase price for the bullion then becomes my new "cost basis" if you will. How will they ever know? I wish I had that problem... alas I don't.
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January 17, 2014, 01:14:54 PM
 #60

Why would I want bitcoins in my IRA? Assuming I ever make a huge "profit" from them I have no intention of paying any capital gains tax on any perceived 'gain' .. I will merely spend them into goods purchased such as bullion... the base purchase price for the bullion then becomes my new "cost basis" if you will. How will they ever know? I wish I had that problem... alas I don't.

This is an important question.  How will they ever know?  Most likely, they won't.  A lot of people don't realize the US tax system is based on the honor system.  You report what you make, your deductions, your gains, losses, etc.  Everything is based on the honor system.  Right up until you get audited. Smiley  Then things change. 

Lets say you own 100 Bitcoins.  BTC goes to $10k/coin.  You now have $1MM.  Can you "hide" that from the IRS?  Most likely, especially since most exchanges aren't issuing tax documents for sells.  But is it worth it?  Let's say Bitcoin goes to $100k/coin.  Can you hide that amount and somehow not pay taxes on it?  Again, maybe, but it becomes increasingly difficult. 

If you buy BTC, sell it for a again, or "exchange" it for gold, technically that's is a sell, and that will generate capital gains, simply as that.


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January 17, 2014, 03:46:20 PM
 #61

Why would I want bitcoins in my IRA? Assuming I ever make a huge "profit" from them I have no intention of paying any capital gains tax on any perceived 'gain' .. I will merely spend them into goods purchased such as bullion... the base purchase price for the bullion then becomes my new "cost basis" if you will. How will they ever know? I wish I had that problem... alas I don't.

That's entirely up to you.  Be aware, however, that many people have gone to jail in the U.S. for tax evasion, and most of them also thought they would not get caught.

This scheme is for someone who wants to LEGALLY avoid paying capital gains taxes and not risk doing jail time.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 17, 2014, 10:15:27 PM
 #62

The contribution limit on a SEP IRA is $51,000 or 25% of salary, whichever is lower, for 2013.

If you have a small business and employ your spouse, the two of you can contribute up to 25% of income, up to $102,000 in 2013, up until April 15.

A SEP IRA funded 100% from post-tax dollars is eligible for rollover into a Roth IRA.

There, I just saved you approximately $1,500,000,000 in tax savings which will accrue on the bitcoin in your tax-free IRA

Tips appreciated.  17zDp3jsT9fmjBShBi8HQtdhr5FJfCJ7Xd

Give a man a fish and he eats for a day.  Give a man a Poisson distribution and he eats at random times independent of one another, at a constant known rate.
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January 19, 2014, 04:28:41 PM
 #63



Perhaps those who have already done it are trying to keep it a secret.  Maybe they're afraid if too many people start doing it, the IRS will change the rules and disallow it.


If there was a way to do it a major investment firm would do it and make billions of dollars in a week.

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January 19, 2014, 05:16:09 PM
 #64



Perhaps those who have already done it are trying to keep it a secret.  Maybe they're afraid if too many people start doing it, the IRS will change the rules and disallow it.


If there was a way to do it a major investment firm would do it and make billions of dollars in a week.



Simply not true.  Major investment firms do not do this for a couple of reasons.  One is the risk of being trustee on an assets they can't "control", like a mutual fund or stock.  Two is fees.  You can charge an IRA fee for holding alternative assets but its a lot harder to convince an investor to pay an asset management fee when all Morgan Stanley, Goldman etc is doing is providing an IRA.


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Bostonbitcoin
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January 19, 2014, 11:44:55 PM
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Simply not true.  Major investment firms do not do this for a couple of reasons.  One is the risk of being trustee on an assets they can't "control", like a mutual fund or stock.  Two is fees.  You can charge an IRA fee for holding alternative assets but its a lot harder to convince an investor to pay an asset management fee when all Morgan Stanley, Goldman etc is doing is providing an IRA.

I think people would gladly pay -- there is huge demand out there.

I looked into this for years when I was doing retail investments -- the main challenge is that the accounting is nearly impossible -- if the IRA LLC buys a small apartment building, separating the expenses of repairs, upkeep, income from rents etc. in a way that satisfies the IRS is very tough.

For Bitcoin the challenges would be great as well....suppose someone put those bitcoin in MtGox through the IRA LLC....then traded.....they could easily jury rig the trades so all profitable trades were accounted to the IRA and all unprofitable ones accounted to a regular account.....then they'd have a large loss in the taxable account and the IRA would have all the (tax deffered) gains.   The only way the IRS could be satisfied that this wasn't the case is to 1) receive an audit of the owners Mt Gox account and 2) audit the other related accounts of that person --- if there are transfers back and forth from Coinbase etc. it's even harder.

Make it more simple:  suppose Joes IRA LLC only buys and holds and that's it..... if he bought Bitcoin for $134, $300, $800 and $900 during 2013.... what is to prevent him from claiming all purchases at $134 and ignoring the $900?

Better yet.....Steve is a brilliant free state guy.....he bought $10,000 worth of Bitcoin at $10 and he has an existing IRA LLC for his real estate business.....what's to stop him TODAY when he files his taxes on claiming those were done on behalf of his IRA

Better yet, how about someone finding someone with Bitcoin they've held for a couple years and making a dummy receipt from Jan 5, 2013 payable to the person from the LLC.

The big firms always want a way to make a buck....if they could they would for sure at least offer it.

I've never ever seen it work other than for ultra wealthy.
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January 20, 2014, 02:11:01 AM
 #66

For Bitcoin the challenges would be great as well....suppose someone put those bitcoin in MtGox through the IRA LLC....then traded.....they could easily jury rig the trades so all profitable trades were accounted to the IRA and all unprofitable ones accounted to a regular account.....then they'd have a large loss in the taxable account and the IRA would have all the (tax deffered) gains.   The only way the IRS could be satisfied that this wasn't the case is to 1) receive an audit of the owners Mt Gox account and 2) audit the other related accounts of that person --- if there are transfers back and forth from Coinbase etc. it's even harder.

Make it more simple:  suppose Joes IRA LLC only buys and holds and that's it..... if he bought Bitcoin for $134, $300, $800 and $900 during 2013.... what is to prevent him from claiming all purchases at $134 and ignoring the $900?

Better yet.....Steve is a brilliant free state guy.....he bought $10,000 worth of Bitcoin at $10 and he has an existing IRA LLC for his real estate business.....what's to stop him TODAY when he files his taxes on claiming those were done on behalf of his IRA

Better yet, how about someone finding someone with Bitcoin they've held for a couple years and making a dummy receipt from Jan 5, 2013 payable to the person from the LLC.

The big firms always want a way to make a buck....if they could they would for sure at least offer it.

I've never ever seen it work other than for ultra wealthy.

Mixing personal and IRA LLC funds is a giant no-no, so you must have separate accounts at the exchange. 

Sure, you can lie about which trades were yours and which were the IRA LLC's, if you're not afraid of losing everything you own and spending some time in jail.  If the IRS decides to audit you, your books had better be in order.  If they decide that you mixed personal and IRA LLC funds, you might be so lucky as to have them just declare the entire IRA null and void, negating all your tax savings, plus tacking on some drastic penalties.  Or you might do some time.

So let me add this caveat.  If you feel compelled to lie on your taxes, you should probably not try to set up an IRA LLC.  You might wind up in huge trouble. 

So let's review.  This plan is no good for people who are too lazy to do the research and paperwork, and its no good for the dishonest.  And it's no good for someone who just wants to invest a few hundred dollars.

It is good for honest people who are willing to invest some time and money in order to LEGALLY avoid capital gains in the event that the bitcoin goes way up.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
Bostonbitcoin
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January 20, 2014, 02:44:28 AM
 #67

This is what I'm saying....not suggesting one mix assets, I'm saying that someone could and the IRS knows that which is why they are extremely strict on these things....it's a super red flag and almost certain audit which will require the owner to basically prove all of the above things didn't occur.

At the very least it would require a very good level of accounting etc.

That's all I'm saying.  I used to do a ton of work with IRAs....I've never seen this work ever, other than for the very wealthy.   I've seen lots of people try but never seen anyone do it right for a decent period of time and not have major trouble / headache.

Small businesses, closely held businesses, non public stock, real estate / income property, metals etc. there is huge demand for this from many many people.   

I guess the question to ask is if you've ever seen anyone do this successfully over a few years....you can also ask accountants and lawyers. 
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January 20, 2014, 05:59:04 AM
Last edit: January 20, 2014, 07:24:47 AM by mmortal03
 #68

This is what I'm saying....not suggesting one mix assets, I'm saying that someone could and the IRS knows that which is why they are extremely strict on these things....it's a super red flag and almost certain audit which will require the owner to basically prove all of the above things didn't occur.

Does the IRS really have it set up that way, such that if you're audited, you're guilty until proven innocent?
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January 20, 2014, 01:24:09 PM
 #69


Does the IRS really have it set up that way, such that if you're audited, you're guilty until proven innocent?

That's the away it is with other things:  if I deduct a home office or the costs of employees, contractors, business trios etc....and they choose to audit they presume guilt until you can prove otherwise.   The more complex the thing, the more proof required.

I would rather steer clear.

I wish this would work, I really do.  I haven't done IRAs of any kind for probably 5 years or so...I used to do them all the time.  If I could confidently depend that a system like this would work I'd do it today, have a huge press release that our firm accepts Bitcoins in IRAs.....I bet we'd open 10,000 new accounts in a week
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January 27, 2014, 08:20:52 PM
 #70

Selling retirement assets and just paying the heavy taxes to buy btc sounds like the easiest route.  Easy and legal system exit.   Wink
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January 28, 2014, 03:38:49 AM
 #71

Selling retirement assets and just paying the heavy taxes to buy btc sounds like the easiest route.  Easy and legal system exit.   Wink

Yes, it would be MUCH easier to cash out the IRA and buy them in your personal accounts!  The IRA LLC is absolutely not for lazy people!

The simple and easy route

Say you had $100,000 in a Roth IRA.  Cash it in early and pay about 1/4 in taxes and penalties (depending on your tax bracket and what percentage is earnings), and buy 94 bitcoins (at $800).  Say bitcoin goes up by a factor of 10.  When you sell them, you pay $300K more in capital gains taxes, and end up with $450K.

Taking the effort to legally reduce taxes

Or you go through a large effort and expense to set up a self-directed IRA LLC, pay no taxes now, and buy 121 bitcoins.  If bitcoin goes up by a factor of 10, once you reach age 59 1/2, you can sell them for $970K and pay zero taxes.

A matter of personal choice

It's a question of how much work you're willing to do in order to reduce your taxes.  It's perfectly reasonable to take the easy route, as long as you're willing to settle for paying huge tax bills both now and later, and ending up with half as much money.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 28, 2014, 05:04:55 AM
 #72

Selling retirement assets and just paying the heavy taxes to buy btc sounds like the easiest route.  Easy and legal system exit.   Wink

Yes, it would be MUCH easier to cash out the IRA and buy them in your personal accounts!  The IRA LLC is absolutely not for lazy people!

The simple and easy route

Say you had $100,000 in a Roth IRA.  Cash it in early and pay about 1/4 in taxes and penalties (depending on your tax bracket and what percentage is earnings), and buy 94 bitcoins (at $800).  Say bitcoin goes up by a factor of 10.  When you sell them, you pay $300K more in capital gains taxes, and end up with $450K.

Taking the effort to legally reduce taxes

Or you go through a large effort and expense to set up a self-directed IRA LLC, pay no taxes now, and buy 121 bitcoins.  If bitcoin goes up by a factor of 10, once you reach age 59 1/2, you can sell them for $970K and pay zero taxes.

A matter of personal choice

It's a question of how much work you're willing to do in order to reduce your taxes.  It's perfectly reasonable to take the easy route, as long as you're willing to settle for paying huge tax bills both now and later, and ending up with half as much money.


This all assumes that the user is concerned with converting back to USD instead of staying in BTC.
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January 28, 2014, 08:53:33 AM
 #73

Selling retirement assets and just paying the heavy taxes to buy btc sounds like the easiest route.  Easy and legal system exit.   Wink

Yes, it would be MUCH easier to cash out the IRA and buy them in your personal accounts!  The IRA LLC is absolutely not for lazy people!

The simple and easy route

Say you had $100,000 in a Roth IRA.  Cash it in early and pay about 1/4 in taxes and penalties (depending on your tax bracket and what percentage is earnings), and buy 94 bitcoins (at $800).  Say bitcoin goes up by a factor of 10.  When you sell them, you pay $300K more in capital gains taxes, and end up with $450K.

Taking the effort to legally reduce taxes

Or you go through a large effort and expense to set up a self-directed IRA LLC, pay no taxes now, and buy 121 bitcoins.  If bitcoin goes up by a factor of 10, once you reach age 59 1/2, you can sell them for $970K and pay zero taxes.

A matter of personal choice

It's a question of how much work you're willing to do in order to reduce your taxes.  It's perfectly reasonable to take the easy route, as long as you're willing to settle for paying huge tax bills both now and later, and ending up with half as much money.


This all assumes that the user is concerned with converting back to USD instead of staying in BTC.

Not so.  For U.S. citizens, buying something with bitcoins automatically triggers capital gains taxes on the increase in value of those bitcoins since you acquired them.  Don't make the mistake of thinking that using bitcoins makes you somehow immune to Big Brother's laws.  If you don't pay the taxes your government says you owe, they will put you in jail.

I suppose I could have included an option #3, where you illegally evade the capital gains taxes, but options that include a heavy risk of jail time don't normally make my lists.

There is also an option #4, which is legal-ish, but pretty extreme.  You could move to a country with no capital gains taxes and renounce your U.S. citizenship.

The IRA LLC seems the least disruptive LEGAL way to avoid taxes on the appreciation in value of bitcoins.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 28, 2014, 05:14:04 PM
 #74

So, the hope here is that the government doesn't end up defining bitcoins as collectibles as the law pertains to this in section 408(m)(1), correct?
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January 28, 2014, 05:16:53 PM
 #75

Also, for those interested, the following seems to cover the topic of this thread in general terms: https://en.wikipedia.org/wiki/Self-directed_IRA
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January 28, 2014, 07:25:31 PM
 #76

So, the hope here is that the government doesn't end up defining bitcoins as collectibles as the law pertains to this in section 408(m)(1), correct?

Yes, that certainly is one risk.  The government could easily change the law to make it illegal to hold bitcoins in self-directed IRAs.  Of course, they might also change the laws to make it illegal to own bitcoins, period.  At one point it was illegal to own gold in this supposedly free country.

There is no reason to believe that the richest men in the world are going to easily give up the right to collect a fee on every single transaction that happens in the world!  The central banks and governments are definitely going to intensify their attacks against bitcoin.

However, while I do predict that there will be further government attacks on bitcoins in the U.S., my guess is that we are more likely to see attacks on mainstream use of bitcoin, as opposed to something as esoteric as ownership of bitcoin in a self-directed IRA LLC. 

I don't think the fact that they could change the laws in the future is a strong reason not to use an IRA LLC today.  Down that road lies total paralysis.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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January 30, 2014, 11:12:56 AM
 #77

Has anyone had any experience with solo 401Ks?
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January 30, 2014, 05:43:08 PM
 #78

Not so.  For U.S. citizens, buying something with bitcoins automatically triggers capital gains taxes on the increase in value of those bitcoins since you acquired them.  Don't make the mistake of thinking that using bitcoins makes you somehow immune to Big Brother's laws.  If you don't pay the taxes your government says you owe, they will put you in jail.

I suppose I could have included an option #3, where you illegally evade the capital gains taxes, but options that include a heavy risk of jail time don't normally make my lists.

I never mentioned anything about selling my bitcoins or transacting with those purchased bitcoins.
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January 30, 2014, 10:33:46 PM
 #79

Not so.  For U.S. citizens, buying something with bitcoins automatically triggers capital gains taxes on the increase in value of those bitcoins since you acquired them.  Don't make the mistake of thinking that using bitcoins makes you somehow immune to Big Brother's laws.  If you don't pay the taxes your government says you owe, they will put you in jail.

I suppose I could have included an option #3, where you illegally evade the capital gains taxes, but options that include a heavy risk of jail time don't normally make my lists.

I never mentioned anything about selling my bitcoins or transacting with those purchased bitcoins.

Not many people on this forum would be interested in buying bitcoins, then never, ever selling them or using them for any purpose whatsoever.  I think most of us want to get rich, and then have the lifestyle that being rich can bring.  Eventually, that means we're going to exchange some of those bitcoins for goods and services.

So most readers of this forum should be thinking now about shielding their future gains from taxes.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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February 12, 2014, 04:27:34 PM
 #80

To OP,

The idea is great but the problem is with a business account on bitcoin exchange.

To avoid mixing personal funds with LLC funds, you need a LLC banking account and business account on bitcoin exchange.

Here is what Bitstamp requires to open a "corporate" account:

<<<<<   To open a corporate account with us please do so by submitting the following documents:
(i) Certificate of incorporation and Memorandum & Articles of Association or any other relevant founding documents
(ii) Annual return which details who the directors and the beneficial shareholders of your company are as of the last fiscal year or any similar documents which confirm the ownership of the company
(iii) Resolution of the Board of Directors to open an account with Bitstamp and identification of those who have authority to operate the account (if applicable)
(iv) Authorization for other persons to manage your account (if applicable)
(v) Copy of a company telephone landline bill or a recent company bank account statement addressed to your company name and office address
(vi) A high resolution image of the international passport and a proof of residency of at least two members
of the board of directors, and any owners with a ownership share of 25% or more

A proof of residency can be a scanned image of one of the following paper documents:
• bank statement (no credit card statements)
• utility bill for utilities consumed at the home address
• tax return, council tax
• certificate of residency issued by a government or a local government authority
• you can also submit other documents to serve as proof of residency such as; government-issued documents, judicial authority-issued documents, documents issued by a public agency / authority, utility service company, or similar regulated service providing companies
These documents must be provided as high resolution images and proof of residency must be scanned images of paper documents.
Finally we would ask you to please help us better understand the nature of your business by answering the following questionnaire:
1. What is the name of the company and what is its Tax / VAT ID?
2. What is the company url? How do your customers typically reach you?
3. Is your business listed on a recognized stock exchange? If so, what is your unique membership ID?
4. Who is(are) the owner(s) of your company? Please provide the information of the beneficial share ownership including the percentage of shares each beneficiary owns. Please identify all parties with beneficial voting rights for trusts.
5. What is your company's business activity? Please provide a detailed description of company activity, what service you provide, who your typical customers are, what type of payments you accept and how your services are priced.
6. Is your business regulated for AML? If so, what is your specific policy? Specifically, how do you perform KYC for your customers? Please provide as many details of your AML policy as possible.
7. What is the purpose of your trading on Bitstamp? Please describe in as much detail as possible how you intend to use your trading account. Please also help us understand how the funds which will be sent to your Bitstamp account were acquired.
8. Which bank are you using? Please provide the complete address and SWIFT code.
9. Estimated amount that you would be depositing to your Bitstamp account per month (in USD and BTC)? Please help us better understand your intended frequency and volume of deposit/withdrawal bank transfers.
10. What type of trading will be conducted? Buying/selling/both?
11. Do you have an established relationship with any other bitcoin exchange?
12. Will your company provide Bitstamp's customers services by making use of their Bitstamp accounts? If so, how?  >>>>>

Most of those requirements do not apply to LLC for IRA, so you cannot open a business account with Bitstamp. If you have an account with Bitstamp that is only for LLC but is under your personal name, the exchanges will not accept funds from LLC bank, as it is considered third party transaction.

As I understand, other exchanges have similar requirements.

How did you deal with this issue?
jzcjca00
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February 12, 2014, 09:36:08 PM
 #81

To OP,

The idea is great but the problem is with a business account on bitcoin exchange.

To avoid mixing personal funds with LLC funds, you need a LLC banking account and business account on bitcoin exchange.

Here is what Bitstamp requires to open a "corporate" account:

<<<<<   To open a corporate account with us please do so by submitting the following documents:
(i) Certificate of incorporation and Memorandum & Articles of Association or any other relevant founding documents
(ii) Annual return which details who the directors and the beneficial shareholders of your company are as of the last fiscal year or any similar documents which confirm the ownership of the company
(iii) Resolution of the Board of Directors to open an account with Bitstamp and identification of those who have authority to operate the account (if applicable)
(iv) Authorization for other persons to manage your account (if applicable)
(v) Copy of a company telephone landline bill or a recent company bank account statement addressed to your company name and office address
(vi) A high resolution image of the international passport and a proof of residency of at least two members
of the board of directors, and any owners with a ownership share of 25% or more

A proof of residency can be a scanned image of one of the following paper documents:
• bank statement (no credit card statements)
• utility bill for utilities consumed at the home address
• tax return, council tax
• certificate of residency issued by a government or a local government authority
• you can also submit other documents to serve as proof of residency such as; government-issued documents, judicial authority-issued documents, documents issued by a public agency / authority, utility service company, or similar regulated service providing companies
These documents must be provided as high resolution images and proof of residency must be scanned images of paper documents.
Finally we would ask you to please help us better understand the nature of your business by answering the following questionnaire:
1. What is the name of the company and what is its Tax / VAT ID?
2. What is the company url? How do your customers typically reach you?
3. Is your business listed on a recognized stock exchange? If so, what is your unique membership ID?
4. Who is(are) the owner(s) of your company? Please provide the information of the beneficial share ownership including the percentage of shares each beneficiary owns. Please identify all parties with beneficial voting rights for trusts.
5. What is your company's business activity? Please provide a detailed description of company activity, what service you provide, who your typical customers are, what type of payments you accept and how your services are priced.
6. Is your business regulated for AML? If so, what is your specific policy? Specifically, how do you perform KYC for your customers? Please provide as many details of your AML policy as possible.
7. What is the purpose of your trading on Bitstamp? Please describe in as much detail as possible how you intend to use your trading account. Please also help us understand how the funds which will be sent to your Bitstamp account were acquired.
8. Which bank are you using? Please provide the complete address and SWIFT code.
9. Estimated amount that you would be depositing to your Bitstamp account per month (in USD and BTC)? Please help us better understand your intended frequency and volume of deposit/withdrawal bank transfers.
10. What type of trading will be conducted? Buying/selling/both?
11. Do you have an established relationship with any other bitcoin exchange?
12. Will your company provide Bitstamp's customers services by making use of their Bitstamp accounts? If so, how?  >>>>>

Most of those requirements do not apply to LLC for IRA, so you cannot open a business account with Bitstamp. If you have an account with Bitstamp that is only for LLC but is under your personal name, the exchanges will not accept funds from LLC bank, as it is considered third party transaction.

As I understand, other exchanges have similar requirements.

How did you deal with this issue?

I have corporate accounts for my IRA LLC at three different exchanges so far.

Bitstamp was no big deal.  I sent them the founding documents for the corporation.  It wasn't exactly what they asked for, but it was the equivalent, and they accepted it.  Where they were asking for the impossible, like proof of residency of at least two members of the board of directors, I just explained the situation.  An LLC doesn't have a board of directors.  They had no problem with that.  They were quite reasonable about it.

It's not trivial, and it takes some time and effort, but it is doable.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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February 14, 2014, 03:45:50 AM
 #82


Thanks jzcjca00.

Very helpful.


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February 14, 2014, 07:30:56 AM
 #83

Can you do this with a traditional IRA too (not a roth). I think I am above the limits to be able to contribute to a roth IRA. They set them rather low for single people :-/.
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February 14, 2014, 12:24:41 PM
 #84

Can you do this with a traditional IRA too (not a roth). I think I am above the limits to be able to contribute to a roth IRA. They set them rather low for single people :-/.

Yes, you can do this with a traditional IRA, but be careful of the tax consequences.  I believe that you pay regular income tax when withdrawing gains from a traditional IRA, while withdrawals from a Roth are tax-free.  If you believe Bitcoin is going up, you really want to find a way to shield the gains from taxes.  The Roth lets you do that.

I'm not an expert at IRAs, so you need to do your own research.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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February 14, 2014, 06:24:27 PM
 #85

Can you do this with a traditional IRA too (not a roth). I think I am above the limits to be able to contribute to a roth IRA. They set them rather low for single people :-/.

While they do have upper income limits for contributing directly to a Roth, they now have no conversion income limits.  They used to have, 2010 and sooner, an income limit of $100k and you can't convert from an IRA to a Roth IRA.  I would suggest to put Bitcoin in an IRA, convert to a Roth IRA, and let it grow tax free.  I will give the caveat I am not a CPA so please consult a CPA first.  But I do know a lot about finances and taxes Smiley


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February 15, 2014, 03:58:32 PM
 #86

Sorry if this has been covered in an earlier reply, but anyone using their IRA to buy Secondmarket ETF's?
I was thinking about opening a brokerage account with my IRA and buying into their ETF, which is a straight hold of btc (with fees of course). While not as efficient as holding btc directly, it does have the advantage of convenience, security, and legality. That is if I read their prospectus carefully and I can indeed purchase through my Ira brokerage account.
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February 15, 2014, 05:21:26 PM
Last edit: February 15, 2014, 05:41:39 PM by 2dogs
 #87

Sounds interesting!

An LLC or Roth IRA LLC to hold your BTC.

Question:

Is bitstamp operating under US regulations and under the LLC scenario, will bitstamp comply with the 1099 reporting requirements?  

Is it based  in the US?  I thought it was based in the UK, but I'm not sure.


EDIT:  forgot I had an account at bitstamp, and looked it up.
Yes, they are UK based.

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February 16, 2014, 12:04:43 AM
 #88

Sorry if this has been covered in an earlier reply, but anyone using their IRA to buy Secondmarket ETF's?
I was thinking about opening a brokerage account with my IRA and buying into their ETF, which is a straight hold of btc (with fees of course). While not as efficient as holding btc directly, it does have the advantage of convenience, security, and legality. That is if I read their prospectus carefully and I can indeed purchase through my Ira brokerage account.

Remember one important issue before investing in this "ETF" (it's technically a trust), you have to be an accredited investor.  Net worth of at least $1MM and/or income of $200k/year (if you file single, $300k joint).  SecondMarket will require verification of this.


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February 19, 2014, 01:56:12 AM
 #89

Sounds interesting!

An LLC or Roth IRA LLC to hold your BTC.

Question:

Is bitstamp operating under US regulations and under the LLC scenario, will bitstamp comply with the 1099 reporting requirements?  

Is it based  in the US?  I thought it was based in the UK, but I'm not sure.


EDIT:  forgot I had an account at bitstamp, and looked it up.
Yes, they are UK based.


I believe Bitstamp is registered in te UK, but actually located in Slovenia.  You can do that in Europe.  

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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May 02, 2014, 01:22:58 AM
 #90

Update:

It took about about 3 weeks to set up and fund the IRA LLC.  This was an intense period of research, phone calls, printing, filling out, scanning, and emailing forms, overnight mail, trips to notaries, trips to banks, record-keeping, and steering around all the roadblocks that popped up along the way.  The power elite do not want this to be easy!

It took about 6 weeks to purchase the bitcoins.  I decided to use only U.S.-based exchanges, so that if anything went wrong, I could sue them in a U.S.-based court.  CampBX flaked out on me, so I wound up doing all my purchases through Coinbase.  Their buying limits were a major obstacle.  Shortly after I bought my last bitcoin, they announced that my purchasing limits had been raised.  Wasn't that super of them!

So about 9 weeks after launching the project, during which time I spent about half of my waking hours on the effort, I finally had a nice nest egg of bitcoins in an IRA LLC owned by my Roth IRA. 

I'll be 59 1/2 in a year or so, after which all withdrawals will be tax- and penalty-free!

Now I'm just waiting for the price to go up!

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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May 02, 2014, 09:02:30 AM
 #91

Update:

It took about about 3 weeks to set up and fund the IRA LLC.  This was an intense period of research, phone calls, printing, filling out, scanning, and emailing forms, overnight mail, trips to notaries, trips to banks, record-keeping, and steering around all the roadblocks that popped up along the way.  The power elite do not want this to be easy!

It took about 6 weeks to purchase the bitcoins.  I decided to use only U.S.-based exchanges, so that if anything went wrong, I could sue them in a U.S.-based court.  CampBX flaked out on me, so I wound up doing all my purchases through Coinbase.  Their buying limits were a major obstacle.  Shortly after I bought my last bitcoin, they announced that my purchasing limits had been raised.  Wasn't that super of them!

So about 9 weeks after launching the project, during which time I spent about half of my waking hours on the effort, I finally had a nice nest egg of bitcoins in an IRA LLC owned by my Roth IRA. 

I'll be 59 1/2 in a year or so, after which all withdrawals will be tax- and penalty-free!

Now I'm just waiting for the price to go up!

You should now write a how-to guide and sell it. Think of it as your own bitcoin derivative income. Wink
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June 07, 2014, 03:12:52 AM
 #92

This is a very bad idea for a number of reasons.

First this is a very expensive way to invest in your retirement. To pay $1,500 in order to "open (setup) your account" to be able to invest in BTC is a lot of money especially when considering the limited amount of funds you can invest in retirement accounts.

Second Bitcoin is a very risky investment for retirement. Bitcoin is likely a good long term investment, however it is very speculative and carries too much risk for retirement. There is a good chance that investing in Bitcoin could make you very rich, but there is also a good chance that Bitcoin will become close to worthless.

Third you have the issue with potential self dealing. If your IRA LLC were to hold BTC via the traditional way of a wallet holding/being in control of private keys then any time someone sends you a random "donation" to your public address you could potentially be accused of self dealing. Many very large BTC addresses often have small amounts of BTC with spam attached to them. The only real way to avoid this is to own BTC via a large exchange or other central fund. This would create risk that this entity could fail and/or steal your coins.
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June 07, 2014, 05:31:17 AM
 #93

Interesting thread with great info... thanks!

Posted From bitcointalk.org Android App
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June 07, 2014, 12:50:49 PM
 #94

You should now write a how-to guide and sell it. Think of it as your own bitcoin derivative income. Wink

Here you are: https://medium.com/@lopp/how-to-invest-in-bitcoin-within-a-tax-advantaged-retirement-account-4c742e564b52
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June 07, 2014, 01:12:19 PM
 #95

This is a very bad idea for a number of reasons.

First this is a very expensive way to invest in your retirement. To pay $1,500 in order to "open (setup) your account" to be able to invest in BTC is a lot of money especially when considering the limited amount of funds you can invest in retirement accounts.

Second Bitcoin is a very risky investment for retirement. Bitcoin is likely a good long term investment, however it is very speculative and carries too much risk for retirement. There is a good chance that investing in Bitcoin could make you very rich, but there is also a good chance that Bitcoin will become close to worthless.

Third you have the issue with potential self dealing. If your IRA LLC were to hold BTC via the traditional way of a wallet holding/being in control of private keys then any time someone sends you a random "donation" to your public address you could potentially be accused of self dealing. Many very large BTC addresses often have small amounts of BTC with spam attached to them. The only real way to avoid this is to own BTC via a large exchange or other central fund. This would create risk that this entity could fail and/or steal your coins.

1) It's expensive compared to traditional methods of investing. However, a self directed IRA gives you a lot of control and flexibility. In terms of cryptocurrency investing, I'd say it's worth it for the ability to hold the private keys yourself. Also, cryptocurrency investing is a completely different ball game than traditional investing - we are not seeking returns of 5% - 10%, we are seeking orders of magnitude more. High risk, high reward.

2) That's your opinion based upon your own risk tolerance. I should note (as I did in my medium post) that you do not have to hold the bitcoins until you are of retirement age. You can sell them at any point in time and not trigger capital gains. You could then turn around and invest that money in other things such as stocks / precious metals / real estate.

3) It's not hard to avoid self dealing if you are intelligent and RTFM. The bitcoin addresses that belong to my IRA LLC have never been posted publicly and the funds are held in cold storage that is completely separate from the bitcoins owned by me personally.
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June 07, 2014, 02:43:56 PM
 #96

Quote
3) It's not hard to avoid self dealing if you are intelligent and RTFM. The bitcoin addresses that belong to my IRA LLC have never been posted publicly and the funds are held in cold storage that is completely separate from the bitcoins owned by me personally.

Any BTC transaction is publicly available on the blockchain. Any time you buy BTC and send it that the address in your BTC IRA the transaction will show up. There are many BTC address with large amounts of BTC that often receive spam transactions of a very small amount along with a public message.

There is no guarantee that your security will protect you 100% from theft of your BTC. In the event that hackers are somehow able to get your private key (they would send the BTC to an address they control) and you could be accused of withdrawing funds prior to retirement age (and be forced to pay the associated taxes on doing so). The anonymous nature of BTC would make it very difficult to prove it either way. When you file taxes the burden is on your to prove that your tax return is accurate. 
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June 07, 2014, 02:48:28 PM
 #97

This is a very bad idea for a number of reasons.
If I had a Bitcoin for every time someone's told me that my investment ideas were bad...  :-)

First this is a very expensive way to invest in your retirement. To pay $1,500 in order to "open (setup) your account" to be able to invest in BTC is a lot of money especially when considering the limited amount of funds you can invest in retirement accounts.
The amount that can accumulate in various retirement accounts, then get converted to a Roth IRA, is not that small.  It adds up and grows over the decades.  If you merely put $4,000 away each year for 10 years, that's $40,000 right there alone.

You are right that paying $1,500 to set up your account would be ridiculous if you only had a few thousand to invest, but it's not so ridiculous if you're investing $15,000 or more.

The question you have to ask yourself is, do I expect to save more in capital gains taxes than it costs to set up the account?  That depends on the amount you're investing, what you expect the price to do, your income bracket, etc.

Second Bitcoin is a very risky investment for retirement. Bitcoin is likely a good long term investment, however it is very speculative and carries too much risk for retirement. There is a good chance that investing in Bitcoin could make you very rich, but there is also a good chance that Bitcoin will become close to worthless.
It's OK to have some risky investments as part of a retirement portfolio, but I would not recommend that anyone put more than 10% of their net worth into bitcoins at the very most.

Third you have the issue with potential self dealing. If your IRA LLC were to hold BTC via the traditional way of a wallet holding/being in control of private keys then any time someone sends you a random "donation" to your public address you could potentially be accused of self dealing. Many very large BTC addresses often have small amounts of BTC with spam attached to them. The only real way to avoid this is to own BTC via a large exchange or other central fund. This would create risk that this entity could fail and/or steal your coins.
I don't really see how receiving unsolicited spam bitcoins from absolute strangers violates the self-dealing rule.  Could you elaborate on this one a bit?


Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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June 07, 2014, 03:18:20 PM
 #98

If your IRA LLC received coins that did not belong to you, I suppose it could be problematic if you could not prove the chain of ownership in order to disprove self dealing. OTOH, if this is also the case then authorities would have a hard time proving self dealing. Simple solution: if this occurs, send those coins to your personal address so that they are not held by your IRA LLC.
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June 07, 2014, 03:25:13 PM
 #99

There is no guarantee that your security will protect you 100% from theft of your BTC. In the event that hackers are somehow able to get your private key (they would send the BTC to an address they control) and you could be accused of withdrawing funds prior to retirement age (and be forced to pay the associated taxes on doing so). The anonymous nature of BTC would make it very difficult to prove it either way. When you file taxes the burden is on your to prove that your tax return is accurate.  

That's why you shouldn't own large amounts of cryptocurrency unless you know how to store them securely. If hackers stole your private keys and thus your bitcoins, you should report the loss. Sure, you could be accused of such things but any accusers would be unable to prove their claims. The exact same situation could occur if you were holding, for example, physical precious metals in your self directed IRA.
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June 10, 2014, 02:17:18 AM
 #100

There is no guarantee that your security will protect you 100% from theft of your BTC. In the event that hackers are somehow able to get your private key (they would send the BTC to an address they control) and you could be accused of withdrawing funds prior to retirement age (and be forced to pay the associated taxes on doing so). The anonymous nature of BTC would make it very difficult to prove it either way. When you file taxes the burden is on your to prove that your tax return is accurate.  

That's why you shouldn't own large amounts of cryptocurrency unless you know how to store them securely. If hackers stole your private keys and thus your bitcoins, you should report the loss. Sure, you could be accused of such things but any accusers would be unable to prove their claims. The exact same situation could occur if you were holding, for example, physical precious metals in your self directed IRA.

The burden is on the tax payer to prove that they filed an accurate tax return.

Once bitcoin ETFs start trading then a much more cost effective way of owning bitcoin in IRAs and other investment accounts will become a reality. This will also likely increase the price of bitcoin over the long term.

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January 06, 2016, 11:42:07 PM
 #101

Update:

It took about about 3 weeks to set up and fund the IRA LLC.  This was an intense period of research, phone calls, printing, filling out, scanning, and emailing forms, overnight mail, trips to notaries, trips to banks, record-keeping, and steering around all the roadblocks that popped up along the way.  The power elite do not want this to be easy!

It took about 6 weeks to purchase the bitcoins.  I decided to use only U.S.-based exchanges, so that if anything went wrong, I could sue them in a U.S.-based court.  CampBX flaked out on me, so I wound up doing all my purchases through Coinbase.  Their buying limits were a major obstacle.  Shortly after I bought my last bitcoin, they announced that my purchasing limits had been raised.  Wasn't that super of them!

So about 9 weeks after launching the project, during which time I spent about half of my waking hours on the effort, I finally had a nice nest egg of bitcoins in an IRA LLC owned by my Roth IRA. 

I'll be 59 1/2 in a year or so, after which all withdrawals will be tax- and penalty-free!

Now I'm just waiting for the price to go up!

Was hoping you can perhaps provide an update to this thread for those who might be considering mirroring your efforts.
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July 08, 2016, 06:12:37 AM
 #102

I've held my crypto in a Roth vehicle since 2013.  The value has increased  12x.  I saved more than 4x my original investment in tax liabilities already.  Keep in mind that if you need money, you can always borrow from the IRA.  You have to pay it back with interest, but you are just paying interest to yourself, so it's a wash, long-term.

Give a man a fish and he eats for a day.  Give a man a Poisson distribution and he eats at random times independent of one another, at a constant known rate.
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February 27, 2017, 05:24:06 AM
 #103

Was hoping you can perhaps provide an update to this thread for those who might be considering mirroring your efforts.

All this effort is no longer necessary.  Just buy GBTC in your brokerage IRA, or maybe COIN next month, if we are lucky.

Tips much appreciated! 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc
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February 28, 2017, 09:54:47 PM
 #104

Was hoping you can perhaps provide an update to this thread for those who might be considering mirroring your efforts.

All this effort is no longer necessary.  Just buy GBTC in your brokerage IRA, or maybe COIN next month, if we are lucky.

GBTC hasn't been following the BTC price very closely lately. For example, I bought some GBTC six weeks ago when BTC was priced around $900, and the value of my GBTC holdings are *down* 2.25% (and were down more than that a few weeks ago). Given that GBTC shares can be redeemed for actual BTC, I doubt the GBTC price premium will ever go into the negative significantly, but you can get caught in a situation where a significant premium can be absorbed in a sell-off before seeing any gains, depending on when you buy in.
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March 02, 2017, 09:14:05 PM
 #105

A very large bank has this asset on their restricted trading list.  Where are peeps trading this asset?
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March 05, 2017, 05:05:34 PM
 #106

Holding btc in a roth LLC sounds like a good idea.

My main concern would be roth IRA's being taxed in the future as the deficit grows.

If I remember right, taxes and fines on 401k's have been steadily rising.

It could be safe to assume IRA's will be next on the tax hike list.

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March 20, 2017, 03:12:33 AM
 #107

Am also interested in this.  
Regardless of the (failed) COIN ETF and (overpriced) GBTC fund,

An IRA LLC seems to be of great value

Cryptocoins defy the expected tradeoff that a Roth carries -- i.e., the lost earnings compared to the extra dollars of pre-tax investments that are normally able to compound.   Bitcoin could easily dwarf stock numbers and the tax benefit is far greater than the appreciation expected from a hypothetical 20% extra pre-tax coin.  That's precisely because Roth allows tax-free trading.  That darn IRS advisory makes tracking sales so confusing, and a way to to avoid triggering capital gains on every sale is a godsend. There's plenty of volatility and opportunity to hedge alt-coins, not to mention benefits from holding other assets without capital gains (like gold).  

That said, it sounds like it's $1500 for something that probably should cost $300.  

https://www.broadfinancial.com/self-directed-ira/ira-llc/ says the following:

"No longer confined by a bias towards stocks, bonds, and mutual funds, it can invest in almost any asset.

Theoretically this process could be performed without a facilitator. An individual investor could establish a new self directed IRA by a qualified custodian, and then open a LLC for the account. However, this path could potentially be dangerous for your retirement account.

It’s very easy to fill out the requisite documents in ways which will not legally conform to self directed IRA regulations. This could result in a rejection of your application, or even an implosion of your IRA with all of the accompanying penalties. With Broad Financial’s platform, the documents are guaranteed to be accurate and hassle-free."


Isn't there demand enough to figure out how to do this without the $1500?  Anybody good with legalzoom.com or nolo.com?
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November 20, 2017, 07:00:04 PM
 #108

I tried to use BitcoinIRA.com.  I went through all the paperwork, moved all the money from my T.Rowe ROTH IRA to them and got ready to buy Bitcoins.  All of the sudden they said they would not do business with me because I had traded on LocalBitcoins.com and they have a policy of not doing business with anyone they can show has done business with LocalBitcoins.com.

So I got all my money back.

I then went to Broad Financial and they are great.  I am so glad that BitcoinIRA.com turned me down!!!  Broad Financial is a much better deal:

1) The flat fee at Broad Financial is less than the percent fee I would have paid BitcoinIRA
2) At Bitcoin IRA they hold the private keys to the Bitcoins, with Broad Financial I hold the private keys to my Bitcoins and they have nothing to
do with them!
3) At BitcoinIRA you can only buy Bitcoins and a few other cryptos.  With Broad Financial I can hold ANY crypto, gold, silver, stocks, bonds, pretty much anything allowed by the IRS.
4) With BitcoinIRA you must use their one broker to buy the cryptos.  This is the broker that will not do business with anyone who has ever traded on localbitcoins.com.  With Broad Financial you buy the cryptos (or gold or whatever) using checks in the checking account of your IRA which you have access and control over.

There is no question, Broad Financial is the better plan.

Our family was terrorized by Homeland Security.  Read all about it here:  http://www.jmwagner.com/ and http://www.burtw.com/  Any donations to help us recover from the $300,000 in legal fees and forced donations to the Federal Asset Forfeiture slush fund are greatly appreciated!
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November 20, 2017, 08:30:09 PM
 #109

Holding btc in a roth LLC sounds like a good idea.

My main concern would be roth IRA's being taxed in the future as the deficit grows.

If I remember right, taxes and fines on 401k's have been steadily rising.

It could be safe to assume IRA's will be next on the tax hike list.


Holding BTC whether in an online wallet or hardware wallet is a  good idea and will grow to reward you if you are patient enough and let it in bitcoin  for a year or even more but keeping it in a roth LLC will definitely attract some tax component and you should be ready to pay.
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November 20, 2017, 10:20:53 PM
 #110

Holding BTC whether in an online wallet or hardware wallet is a  good idea and will grow to reward you if you are patient enough and let it in bitcoin  for a year or even more but keeping it in a roth LLC will definitely attract some tax component and you should be ready to pay.
The reason to put your BTC into a Roth IRA is that then there will be no taxes on the gains.  So you "should be ready to pay" what exactly?  Why did you go off about online and hardware wallets?  Are you just a posting bot?  If so then I hope you die a horrible death (for a posting bot).  If a real person then WTF are you talking about?

Our family was terrorized by Homeland Security.  Read all about it here:  http://www.jmwagner.com/ and http://www.burtw.com/  Any donations to help us recover from the $300,000 in legal fees and forced donations to the Federal Asset Forfeiture slush fund are greatly appreciated!
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