Topic: How and why to hold bitcoins in your Roth IRA (yes, you can do it today!) - page 4. (Read 16954 times)

The point of the OP is that you CAN do it today.  You do not need to wait for Vanguard, Fidelity, or anyone else to support it.  It just takes a modest effort and expense to set it up.

Yes.  Custodians are highly regulated usually by the federal government in some fashion, SEC, FINRA, etc.  Banks, financial companies, etc.

Anyway, this proves early adopters should be rewarded. Some people have liquidated savings and retirement. High risk, high reward.

Damn I wish my vanguard ira supported it today before it's too late.

Custodians legally have to work within a traditional organization that is approved by the IRS?

Edit:

Looks like the answer is partially yes...?

http://www.irs.gov/Retirement-Plans/Approved-Nonbank-Trustees-and-Custodians

I think there's a conflict of interest in you having access to the private keys where you can use funds and replace them without anyone noticing.

The government requires the "IRA custodian" to hold the assets.

If you find a custodian who will hold bitcoins for you, they would have the private keys.  I'm not sure there are any custodians currently willing to do that, and it makes me uncomfortable, anyway.

PENSCO, Entrust, & Equity Institutional have agreed to hold shares of the SecondMarket Bitcoin Investment Trust in IRA accounts, but I believe you must be an accredited investor, with net worth over a million dollars.  That makes it unreachable for most bitcoiners.

I'm suggesting a third option.  You need an IRA custodian (like IRA Services Trust Company) who is willing to hold your funds in the form of 100% ownership of an IRA LLC.  This IRA LLC is a company which you manage yourself, and it holds assets for you.  In the case of bitcoin, as the manager of the IRA LLC, you hold the private keys.  It is your responsibility to keep them safe and secure.

The IRA LLC does not require you to be a high net worth investor.  It does not require you to let someone else hold your private keys.  You are not limited to bitcoins.  You could also hold gold and silver.  Again, you would be responsible for keeping them safe.  Your IRA LLC can also hold real estate and thousands of other things.  As the manager of the LLC, it is your job to follow all the laws about IRA investments.

There is an important difference between you owning the bitcoins outright, and you managing a company that owns the bitcoins.  In both cases, you control them, but when they belong to the IRA LLC, you are not legally allowed to use them for your own personal benefit.  If you want to use those bitcoins to buy a new house or car or whatever for your own personal use, the laws require you to do a withdrawal through the IRA custodian first.

I am not a financial advisor.  Seek the advice of a qualified financial advisor, preferably one who knows something about bitcoins and IRA LLCs, before making any investment decisions.  

Be he's actually doing the proper asset allocation strategy, never hold all your eggs in one basket.  I'd bet most people on these forums are "all-in" or really close to all in on Bitcoins.  And that's fine.  It's gambling, but it's fine.  Most people suggest never have more than 5% in any given stock, bond, commodity etc.  While he is limiting is upside, he is also greatly limiting his downside.

It depends on your tax bracket.  Check the brackets above.  This is why I plan on retiring when bitcoin gets high enough because I get the same amount of money without going to work.

While that's true, if you continually sell down your holdings to stay at 10% you'll never end up with a significant holding. Probably better to go with the SSS plan if you don't just plan to hold for the longest time. https://bitcointalksearch.org/topic/sss-a-sane-and-simple-bitcoin-savings-plan-345065

Those three I mentioned above all do a lot of alternatives in IRA's.  There's a reason they charge what they charge, there's a lot of risk to them holding these securities as trustee of your IRA/Roth.  Plus, in the scheme of things they really aren't make -that- much money.  I think PENSCO charges $100/yr plus some small asset based charge.  They aren't going to make commission or a management fee of of you in that IRA so that's their only fees.  It's expensive for $5,500 account, not so much for a $100k account.

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?

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.

Do you control the private keys?

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.

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)?

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.

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.

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?

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.