Using Your IRA to Invest in….Bitcoin ??
The following request comes from a potential client who will remain nameless:
I’ve done some more reading on self-directed IRA LLCs and I’m not so sure that they’re correct for me. I’m hoping that there are other options that will allow me to do what I want without all that overhead and potential IRS attention.
The initial reason that a self-directed IRA LLC appealed to me was because I could use it to make non-traditional investments in things like Bitcoin. (Bitcoin is a peer-to-peer digital currency. http://bitcoin.org.) It also appeared to me at first that, by using an IRA LLC, I could hold precious metals personally rather than having to have them held by a trustee. However now I think that, even in the IRA LLC case, holding the PM myself would make it a prohibited transaction if I were ever audited by the IRS.
So, instead of an IRA LLC, I’d rather talk about IRA options. As I said, I’d like an IRA that allows me to invest in bitcoins, gold and silver bullion, and other traditional investments. If I can’t hold the precious metals myself, I’d prefer storage on the west coast rather than the east. I’d like to make fairly regular trades, so I’d need something like a third-party brokerage account somewhere like Fidelity.
The Bitcoin part is the most important to me though. The gold, silver, and investment account stuff is fairly standard; investing in a peer-to-peer digital currency, not so much. My guess is that I can treat bitcoins as any other foreign currency held by an IRA but I’m not sure.
I’m looking for an IRA that allows me enough freedom to make these investments while, at the same time, is still “standard” enough that it won’t cause alarms at the IRS.
I’ll be rolling over the 401k from my last employer. This will be about $200k. I’ll also be making maximum contributions each year. My 401k has an employer match up to a certain percent and by maxing that out I exceed the 401k contribution limit. (That is, they match up to half of the first 6% I save in my 401k and that works out to 9% of my salary. However, 9% of my salary exceeds the $17k yearly limit for a 401k.) I believe that IRA and 401k yearly contribution amounts are independent, so I should be able to still contribute to the IRA. (I’d like to discuss a Roth IRA as well, but I don’t think I qualify.)
My questions for you:
1. Can we construct an IRA that allows me to hold bitcoins?
2. What services do you provide? What are your fees? How much will this IRA cost yearly? I don’t need an exact number, a rough estimate is fine.
3. The only reason I contacted your company was because we were both in the Seattle area. Why should I go with your company rather than a more well-known one like Pensco?
Thanks for taking the time to read all this! I’m looking forward to your answers!
My first thought is, I absolutely love the creativity! This is one of the reasons we got into this industry. There are many creative options to help swell one’s IRA, tax free when it’s been self-directed. However, Bitcoin may have some issues with this.
1. There is not enough case history to give you a yes or no answer on bitcoins yet. While one may be able to use bitcoins’ alternative currency as a way to increase IRA returns, it would be unwise to be a “test case.” Test cases usually means the tester looses and the IRS wins which is not a good scenario for your IRA.
2. We set up the entire structure form beginning to end. We will structure your retirement account so that you have absolute and complete checkbook control of all your retirement assets. If you want to make an investment, all you have to do is write a check It’s that simple.
3. The set up of the IRA/LLC structure is a one-time fee. Annual fees are $225 per year no matter the size of your retirement account or the number of transactions. There is no charge for “assets under management.”
4. While many custodians tout the ability to self-direct fewer than you think actually offer the IRA/LLC structure. There are a number of advantages to our structure such as limited fees, limited liability and checkbook control. By the way, if it’s name recognition you want, your IRA checking account is set-up through Charles Schwab.