Rules and Regulations You Should Know Before Investing in Bitcoin IRA

As cryptocurrencies gradually become a household name, there has certainly been an increasing interest among a significant fraction of investors to own various coins and tokens such as Bitcoin in their IRAs -and for good reason. 

Cryptocurrencies are currently having a good run, with Bitcoin and Ether, among others achieving their all-time highs in 2021. 

So, if you also want to invest in crypto for its potential long-term rewards, a Bitcoin IRA is an excellent way to go. But before you get on with it, take a minute to learn the rules you need to know about and what investments are prohibited in your Bitcoin IRA.

This article breaks down all you need to know about how to buy Bitcoin in an IRA so you can make a well-guided decision. 

Let us get started.

What Exactly Is a Bitcoin IRA

Before we get into how you can invest in a Bitcoin IRA, you need to know what it really is so you can determine if or not it’s an attractive investment choice.  

A Bitcoin IRA is a retirement account designed for holding cryptocurrencies. It’s tax-advantaged, self-directed, and can be either Roth or traditional. 

It’s worth noting that Bitcoin IRAs don’t just hold cryptos. They can also include bonds and traditional stocks. 

Rules You Need to Know About Bitcoin IRAs

The first thing you need to know is that a specific Internal Revenue Service (IRS) account exclusively meant for cryptos does not exist. For this reason, when people refer to a “Bitcoin IRA,” they basically mean a self-directed IRA that includes Bitcoin or other cryptocurrencies within its portfolio of holdings.

Another important thing to note is that the IRS deems Bitcoin and other cryptocurrencies in retirement accounts as property, meaning these assets are taxed similar to stocks and bonds.

That brings us to the next important thing. 

Since the IRS considers Bitcoin and other cryptocurrencies as property, you need a custodian such as Viva Capital to hold your Bitcoin IRA and safeguard it. This way, you get to comply with IRS regulations.

Moving forward, you can establish a Bitcoin IRA as either a traditional account (for which contributions are tax-deductible and funds taxed upon withdrawal) or a Roth account (no tax break on contributions, but distributions are tax-free) and benefit from their associated tax advantages.

Last but not least, you will be subject to the same yearly contribution limits, $6,000 or $7,000 if you are 50 or older in 2021 and 2022.

How To Buy Bitcoin in IRA

To purchase Bitcoin or crypto in your IRA, you need a custodian, as mentioned before. This party can hold and deal in cryptocurrency.

Note some custodians might ask you to apply before they walk you through the process. After that, you can fund your account via a rollover of funds from an existing IRA or another tax-advantaged account. You can also contribute new funds.

What Investments Are Prohibited in a Bitcoin IRA?

A bitcoin IRA usually includes Bitcoin within its portfolio. Apart from Bitcoin, it allows you to invest in other cryptocurrencies, e.g., Ether, Binance coin, to name a few. While there are exceptions, crypto IRAs normally do not hold real estate, precious metals, stocks, bonds, among other assets.

Invest In a Bitcoin IRA Through a Reliable Custodian Today

If you want a slice of the action, the process of investing in cryptocurrency is relatively easy and a Bitcoin IRA can help you do just that. Note that there are many service providers in the market, so be sure to do your research to ensure you partner with a reliable custodian.