Topic: How and why to hold bitcoins in your Roth IRA (yes, you can do it today!) - page 3. (Read 16954 times)

Selling retirement assets and just paying the heavy taxes to buy btc sounds like the easiest route.  Easy and legal system exit.   

That's the away it is with other things:  if I deduct a home office or the costs of employees, contractors, business trios etc....and they choose to audit they presume guilt until you can prove otherwise.   The more complex the thing, the more proof required.

I would rather steer clear.

I wish this would work, I really do.  I haven't done IRAs of any kind for probably 5 years or so...I used to do them all the time.  If I could confidently depend that a system like this would work I'd do it today, have a huge press release that our firm accepts Bitcoins in IRAs.....I bet we'd open 10,000 new accounts in a week

Does the IRS really have it set up that way, such that if you're audited, you're guilty until proven innocent?

This is what I'm saying....not suggesting one mix assets, I'm saying that someone could and the IRS knows that which is why they are extremely strict on these things....it's a super red flag and almost certain audit which will require the owner to basically prove all of the above things didn't occur.

At the very least it would require a very good level of accounting etc.

That's all I'm saying.  I used to do a ton of work with IRAs....I've never seen this work ever, other than for the very wealthy.   I've seen lots of people try but never seen anyone do it right for a decent period of time and not have major trouble / headache.

Small businesses, closely held businesses, non public stock, real estate / income property, metals etc. there is huge demand for this from many many people.   

I guess the question to ask is if you've ever seen anyone do this successfully over a few years....you can also ask accountants and lawyers. 

Mixing personal and IRA LLC funds is a giant no-no, so you must have separate accounts at the exchange. 

Sure, you can lie about which trades were yours and which were the IRA LLC's, if you're not afraid of losing everything you own and spending some time in jail.  If the IRS decides to audit you, your books had better be in order.  If they decide that you mixed personal and IRA LLC funds, you might be so lucky as to have them just declare the entire IRA null and void, negating all your tax savings, plus tacking on some drastic penalties.  Or you might do some time.

So let me add this caveat.  If you feel compelled to lie on your taxes, you should probably not try to set up an IRA LLC.  You might wind up in huge trouble. 

So let's review.  This plan is no good for people who are too lazy to do the research and paperwork, and its no good for the dishonest.  And it's no good for someone who just wants to invest a few hundred dollars.

It is good for honest people who are willing to invest some time and money in order to LEGALLY avoid capital gains in the event that the bitcoin goes way up.

I think people would gladly pay -- there is huge demand out there.

I looked into this for years when I was doing retail investments -- the main challenge is that the accounting is nearly impossible -- if the IRA LLC buys a small apartment building, separating the expenses of repairs, upkeep, income from rents etc. in a way that satisfies the IRS is very tough.

For Bitcoin the challenges would be great as well....suppose someone put those bitcoin in MtGox through the IRA LLC....then traded.....they could easily jury rig the trades so all profitable trades were accounted to the IRA and all unprofitable ones accounted to a regular account.....then they'd have a large loss in the taxable account and the IRA would have all the (tax deffered) gains.   The only way the IRS could be satisfied that this wasn't the case is to 1) receive an audit of the owners Mt Gox account and 2) audit the other related accounts of that person --- if there are transfers back and forth from Coinbase etc. it's even harder.

Make it more simple:  suppose Joes IRA LLC only buys and holds and that's it..... if he bought Bitcoin for $134, $300, $800 and $900 during 2013.... what is to prevent him from claiming all purchases at $134 and ignoring the $900?

Better yet.....Steve is a brilliant free state guy.....he bought $10,000 worth of Bitcoin at $10 and he has an existing IRA LLC for his real estate business.....what's to stop him TODAY when he files his taxes on claiming those were done on behalf of his IRA

Better yet, how about someone finding someone with Bitcoin they've held for a couple years and making a dummy receipt from Jan 5, 2013 payable to the person from the LLC.

The big firms always want a way to make a buck....if they could they would for sure at least offer it.

I've never ever seen it work other than for ultra wealthy.

Simply not true.  Major investment firms do not do this for a couple of reasons.  One is the risk of being trustee on an assets they can't "control", like a mutual fund or stock.  Two is fees.  You can charge an IRA fee for holding alternative assets but its a lot harder to convince an investor to pay an asset management fee when all Morgan Stanley, Goldman etc is doing is providing an IRA.

If there was a way to do it a major investment firm would do it and make billions of dollars in a week.

The contribution limit on a SEP IRA is $51,000 or 25% of salary, whichever is lower, for 2013.

If you have a small business and employ your spouse, the two of you can contribute up to 25% of income, up to $102,000 in 2013, up until April 15.

A SEP IRA funded 100% from post-tax dollars is eligible for rollover into a Roth IRA.

There, I just saved you approximately $1,500,000,000 in tax savings which will accrue on the bitcoin in your tax-free IRA

Tips appreciated.  17zDp3jsT9fmjBShBi8HQtdhr5FJfCJ7Xd

That's entirely up to you.  Be aware, however, that many people have gone to jail in the U.S. for tax evasion, and most of them also thought they would not get caught.

This scheme is for someone who wants to LEGALLY avoid paying capital gains taxes and not risk doing jail time.

This is an important question.  How will they ever know?  Most likely, they won't.  A lot of people don't realize the US tax system is based on the honor system.  You report what you make, your deductions, your gains, losses, etc.  Everything is based on the honor system.  Right up until you get audited.   Then things change. 

Lets say you own 100 Bitcoins.  BTC goes to $10k/coin.  You now have $1MM.  Can you "hide" that from the IRS?  Most likely, especially since most exchanges aren't issuing tax documents for sells.  But is it worth it?  Let's say Bitcoin goes to $100k/coin.  Can you hide that amount and somehow not pay taxes on it?  Again, maybe, but it becomes increasingly difficult. 

If you buy BTC, sell it for a again, or "exchange" it for gold, technically that's is a sell, and that will generate capital gains, simply as that.

Why would I want bitcoins in my IRA? Assuming I ever make a huge "profit" from them I have no intention of paying any capital gains tax on any perceived 'gain' .. I will merely spend them into goods purchased such as bullion... the base purchase price for the bullion then becomes my new "cost basis" if you will. How will they ever know? I wish I had that problem... alas I don't.

Just remember that n this case, the only asset the IRA custodian holds is 100% ownership of the IRA LLC.  They do not hold the bitcoins for you.  They don't have to know diddly squat about bitcoins.

Perhaps those who have already done it are trying to keep it a secret.  Maybe they're afraid if too many people start doing it, the IRS will change the rules and disallow it.

I'm personally hoping that lots of libertarians will do it so that we can perhaps win some elections in the future and achieve liberty in our lifetime.

No, absolutely not.  Go back and read this entire thread more carefully.  Then, if you don't understand something, ask me for clarification.  Don't just assume the worst.

This is not trivial to do, but a company like Broad Financial does the hard part, like creating the Operating Agreement for the LLC, etc.  Nevertheless, it will still take many hours of research and effort on your part.  (Reading this thread carefully can save many hours of research.) You have to decide whether the potential tax savings is worth the effort.

There are several different companies that can help you set up the IRA LLC.  If you don't like Broad Financial's website, pick another company.  However, they have given me great service.

Here's what they will do for you:
-- Help you open a Roth (or other kind of) IRA with IRA Services Trust Company as the custodian.
-- Help you fund that Roth IRA through a transfer, rollover, or contribution.
-- Help you create an IRA LLC in your state, including creating appropriate Articles of Organization, Operating Agreement, or whatever is needed in your state.
-- Help you get a federal EIN for the IRA LLC.
-- Help you set up the investment in your IRA LLC from your Roth IRA.

The IRA rules require the IRA custodian to hold the assets in your IRA, so they are the sole owner of your IRA LLC.  That ownership is the ONLY thing they hold.

You are the manager of the IRA LLC.  You control accounts at banks and exchanges, on behalf of the IRA LLC.  You buy and sell bitcoins on behalf of the IRA LLC.  You are solely responsible for securing the assets of the IRA LLC.  You set up cold storage and guard the private keys, on behalf of the IRA LLC.

Imagine if you were the CEO of Microsoft.  You control many assets, but you own none of them.  This is the same thing.  You are managing and securing assets that do not directly belong to you.

You will have the private keys, but you will NOT own the bitcoins.  The bitcoins will be owned by the IRA LLC, which is owned by IRA Services for the benefit of you.  If you want to cash out, you would have to sell the bitcoins on behalf of the IRA LLC, send the cash back to the IRA custodian, then request an IRA disbursement.  You have to follow the normal IRA disbursement rules or possibly face the normal IRA penalties and taxes.

This is not something for lazy people.  It's 1000 times more work than buying shares of an ETF.  You have to decide whether it's worth the expense and bother to save some money on taxes.

So you need to trust an unheard of financial institution who has crappy website design with your private keys?   

What details would you like?  The OP pretty much explained exactly what you need to do step by step.  Its not easy, buts not overly difficult either with the right people involved.  I googled IRA LLC and these guys popped up:

http://www.broadfinancial.com/self-directed-ira/ira-llc

I don't know anything about them nor am I affiliated with them but they specialized in alternative IRA holdings.  I use PENSCO personally.

Good luck!

If there was a way to do it today then why hasn't anyone shared further details?  I've put in more then a modest effort and I have not found how this would be done thru most traditional institutions.

Am I correct to assume (in your case) they are custodian of the BIT and not actual bitcoins?

I agree. I don't think Vanguard will ever support this, not really in their mantra.  Fidelity did support buying the BIT for a little while but then decided against it.  Very few firms around the country, including the bigger boys like Morgan Stanley, Merrill Lynch, etc, will take the risk of holding alternative securities in an IRA.  Like jz says, you can do it today, it just takes some legwork!