How and why to hold bitcoins in your Roth IRA (yes, you can do it today!)

[jzcjca00]

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.

[delta]

Thanks jzcjca00.

Very helpful.

[mgio]

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 :-/.

[jzcjca00]

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.

[skivrmt]

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

[Hkbtc]

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.

[2dogs]

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.

[skivrmt]

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.

[jzcjca00]

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.  

[jzcjca00]

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!

[mmortal03]

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.

[redwhitenblue]

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.

[Bitcopia]

Interesting thread with great info... thanks!

Posted From bitcointalk.org Android App

[statoshi]

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

Here you are: https://medium.com/@lopp/how-to-invest-in-bitcoin-within-a-tax-advantaged-retirement-account-4c742e564b52

[statoshi]

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.

[redwhitenblue]

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. 

[jzcjca00]

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?

[statoshi]

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.

[statoshi]

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.

[Harley997]

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.