Topic: How and why to hold bitcoins in your Roth IRA (yes, you can do it today!) - page 6. (Read 16954 times)

I think I may be on the wrong site.  At this site, one person asks if the price will ever go above $X, and 40 people answer, "to da effin moon!"  Then it turns into 17 pages of pumping the latest hamstercoin.  Meanwhile, a serious post about how to avoid taxes on capital gains gets very few responses.

Can someone please direct me to the Bitcoin forum for grownups?

Is this a new thing, because that didn't used to be true.  Are you sure it is based only on your non-long-term-gain income?

How can we be sure it will be true in the future?  Those tax rates and rules change almost every year!

Of course, the usual disclaimers apply to everything I say.  Do not consider this to be investment or legal advice.  Always consult a qualified and overpaid CPA and tax attorney before making any investment or just sitting there with your teeth in your mouth and not investing.  Always consult a doctor before not starting any exercise program.

Bitcoin is risky and volatile, and you could lose 100% of your investment, which explains why SecondMarket has only sold about $70 million worth to rich people.  Past performance does not guarantee future gain, although generally speaking, the trend is your friend.

Only invest money you can afford to lose.  Do not invest in Bitcoin if you are unwilling to accept the risks of either becoming filthy rich or losing your entire investment.

1.  For those in their twenties, jobless, living in their mother's basement, a Roth IRA is not a high priority.

2.  Those who have been working for a while probably already have some money in a Roth, or in another type of retirement account that can be converted to a Roth.

3.  Even someone with no retirement accounts can benefit.  Consider a person who is 50 years old, with no savings, no retirement accounts, and a low-paying job.  By giving up cigarettes and beer for a year (and you know that poor people always have cigarette and beer money), they could save enough to create a Roth IRA LLC and buy at least 4 BTC, which might be worth $400K by the time they reach age 59 1/2.  (If they don't do it, it's not because it's impossible, but because they are not sufficiently motivated.  If they choose to smoke, drink, and be poor, there is nothing we can do.)

You don't need to invest a huge amount.  If bitcoin goes up by a factor of 100 by the time you retire, then $50,000 today would turn into $5 million then.

Fair enough, but this is different than moving your already existing bitcoins into an account you control (*cough* money laundering).
As you stated previously, you can only invest what you're allowed to contribute, which are qualified funds subjected to the IRS's contribution limits, or funds you have already invested in IRAs or another retirement account previously.
So that's $5500 of earned income if you're under 50

Then again, I've already been doing this via IRA financial group (in a roth so I'm not hit by a tax penalty if I had mis-characterized my funds/made a mistake).
There are cheaper options but I'm only using my contribution limits for one year.

The percentage of your holdings to put in a Roth IRA depends on your age and how likely you are to want to access that money before you reach retirement age.

If you are young, you probably only need a smallish number of bitcoins in the IRA.  By the time you reach retirement age, their value will probably either have grown a whole lot, or they won't be worth much at all.  So a small investment in a Roth IRA today either means a very comfortable retirement or a small loss.  At some point making a larger investment multiplies the risk without significantly improving the outcome.  Your retirement won't be that much different if you're worth $100 million instead of just $10 million.

However, the rules of the Roth IRA allow unlimited, tax-free withdrawals once you reach age 59 1/2 (as long as you have had any Roth IRA account for at least 5 years).  So if you're already that age, or are willing to wait until that age to touch the money, you would want to put most of your coins into the Roth and avoid all those capital gains taxes!

Yes, the self-dealing prohibition does increase the effort, but I wouldn't characterize it as "the" problem.  It is one of many issues to work around, but the tax advantages make it worth the effort.

The government severely restricts your ability to put money into or take money out of any IRA, and the restrictions on self-dealing are to prevent people from circumventing those rules.

So in order to move bitcoins from personal accounts, you must sell them in your personal accounts, pay tax on the capital gains up to that point, contribute the remaining dollars to your IRA (subject to strict limits), invest that cash into the IRA LLC, then buy bitcoins there.  You wind up paying fees and experiencing delays along the way, and the price is likely to rise between the time you sell and when you manage to buy back in.  But remember this: once you have accomplished this, as long as you follow the Roth IRA rules, you will never be taxed on future gains!

Imagine you currently have $50,000 invested in mutual funds in a Roth IRA, plus bitcoins in your non-IRA funds which have recently grown to be worth $50,000.  Say you decide to move half of those bitcoins into the Roth IRA to avoid taxes on future gains.  You open a self-directed Roth IRA and create an IRA LLC, sell $26,000 of the mutual funds, transfer that cash to the new Roth IRA, then to the IRA LLC, then to an exchange, then buy bitcoins.  Then you sell that same number of bitcoins in your personal accounts and pay tax on the gains up to that point.  You're still paying fees all along the way, but at least by doing it in that order, you won't miss any major bitcoin rallies while waiting for slow fiat money transfers.

Imagine that by the time you reach age 59.5, those bitcoins are worth 2.5 million dollars.  You will be able to withdraw them from your Roth IRA completely tax-free, saving almost a million dollars in capital gains taxes!

When you invest in bitcoins outside of a Roth IRA, you take 100% of the risk, but you set yourself up for only receiving a portion of the potential reward because of future capital gains taxes.  I say it's worth some effort and expense today to avoid those future taxes.

The problem is that you can not directly transfer your bitcoin to your IRA.
Your funds have to go to your custodian first, before it can go into your LLC.

Otherwise, you are self-dealing, and will lose the tax advantage of the IRA

If you pay U.S. taxes, you need to be aware that it is possible TODAY to hold bitcoins in your Roth IRA, and there are important tax advantages for doing so!

Most people think that you can only hold stocks and mutual funds in an IRA, and many bitcoin fans are anxiously waiting for approval so they can invest retirement funds in bitcoin through the Winklevoss ETF.  What they do not realize is that there is already a way to hold bitcoins in IRAs today!

It takes some effort and expense, but anyone can set up an "IRA LLC," which allows you to hold MANY different types of alternative investments, including bitcoins.  It's 100% legal.

There are companies that (for around $1500) will help you set up a self-directed IRA (traditional, Roth, etc.), plus an IRA legal liability company (IRA LLC) for managing the investments.  Your IRA is the sole owner of the LLC, and you are the manager.  Your IRA LLC can invest in a wide variety of things, like real estate, gold, silver, and even bitcoins.

It's not a trivial undertaking.  There are a few things you cannot invest in (life insurance, collectibles, etc.), and there are certain kinds of transactions that are prohibited.  But you can buy and sell bitcoins on exchanges, hold them in cold storage, etc.  And the tax advantages make it worth the effort and expense.

In particular, if the price of bitcoin increases substantially, a Roth IRA LLC can completely eliminate capital gains taxes, so if you do become a Bitcoin millionaire, you don't have to pay half of it to the U.S. government.

If you have thousands of dollars worth of bitcoins, you should consider using an IRA LLC to make sure you get to keep the gains!

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