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

[skivrmt]

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.

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[CygnusX1]

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.

[jzcjca00]

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.

[CygnusX1]

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. 

[BitDreams]

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.

[jzcjca00]

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

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

I just set up this new tip address: 1PPJHDawPvjh6MEzsvXrMYLgpLmyAaNXUc

[skivrmt]

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. 

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!!

[jzcjca00]

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

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.

[jzcjca00]

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. 

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.

[bitpop]

Very cool

[calian]

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]

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?

[kellrobinson]

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.

[CygnusX1]

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.

[delta]

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)?

[skivrmt]

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.

[CygnusX1]

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.

[kellrobinson]

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?

[jzcjca00]

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.

[kellrobinson]

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?