Topic: How and why to hold bitcoins in your Roth IRA (yes, you can do it today!) - page 2. (Read 16901 times)

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!

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

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.

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.

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.

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

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.

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 :-/.

Thanks jzcjca00.

Very helpful.

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.

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?

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.

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

Has anyone had any experience with solo 401Ks?

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.

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

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?

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.

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

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.