Cryptocurrency is a digital currency, also called a digital asset, that is designed to work as a medium of exchange. This means that the people who invented it wanted you to be able to exchange the currency for goods or services. Cryptocurrency behaves essentially the same way your dollars do, but cryptocurrencies are alternative currencies. This means that they are decentralized, anonymous, secure (in the sense that no one can track your spending), and automated.
Blockchain is a digital database distributed across the terminals (or nodes) of a network. The database is made up of multiple “blocks” that hold sets of information and are linked to other blocks but not necessarily accessible from one block to another.
IRA stands for individual retirement account. IRAs provide account owners with tax advantages as an incentive to save money for retirement.
A self-directed IRA, also often referred to as an SDIRA, is an individual retirement account (IRA) that can hold alternative investments like real estate or private equity. Self-directed accounts are managed by the account holder (owner) but administered by a self-directed IRA custodian, trustee, or administrator.
Yes. You can use a self-directed IRA, a self-directed Roth IRA, a self-directed 401K, or a Roth Solo 401K.
No. However, not all custodians permit their clients to invest in cryptocurrency. If a custodian will not administer the account, then you cannot invest in cryptocurrency until you change custodians.
That is fine! You can use your self-directed account to invest in more than one alternative asset or asset class.
That is fine! You can use your self-directed account to invest in more than one asset or asset class, including traditional assets like stocks, bonds, and mutual funds.
Not every IRA custodian has the same level of specialty. Since your custodian must administer your account, if they are not equipped to perform their jobs when dealing with self-directed assets, they may refuse to permit self-directed accounts.
Not every IRA custodian has the same level of specialty. Since your custodian must administer your account, if they are not equipped to handle cryptocurrency investments, they may elect to refuse to permit clients to invest in them.
Yes! Many self-directed investors use their self-directed IRAs to diversify into many alternative assets that offer much higher potential returns than “traditional” stock investments.
Yes! Click here to talk to an account advisor who can help you get started.
At TaxFreeCrypto.com, we know that it can be hard to invest in emerging markets when you have little or no experience in the sector. Thanks to our preferred partnership program managed in partnership with Equity Trust Company, the country’s biggest IRA custodian with more than 213,000 accounts holding more than $34 billion in retirement assets, you will have the option of working with leading cryptocurrency providers that can help you create an investing experience customized to your comfort level.
Not quite, but you will have dozens to choose from! Some cryptocurrency companies do not succeed in positioning their assets so that they meet IRS criteria for self-directed investing. Also, some companies call their products cryptocurrency but actually are engaging in violations of securities law. These assets typically will not be available for purchase on cryptocurrency platforms either.
At present, the emerging cryptocurrency market contains about nine distinct forms of cryptocurrency, including NFTs (which may be classified as collectibles and therefore not permitted in your SDIRA) and asset-backed tokens (which you must evaluate carefully to make sure you and the provider are abiding by securities laws). The five biggest “traditional” cryptocurrencies, those that are best-known, that have been around the longest, or that skyrocketed in value during the COVID-19 pandemic, are:
Bitcoin
Ethereum
Tether
Cardano
Binance Coin
When you invest in cryptocurrency using your self-directed IRA, your earnings will accrue in the account tax-free. This means that if you had invested in 10 bitcoins using an SDIRA in May 2021, when it fell to $30,000 (total investment of $300,000) and converted those bitcoins to dollars in September 2021, when it was trading around $42,000 (total gains of $120,000), then that $120,000 in returns would not be taxed as long as it remained in your SDIRA. Had you invested in the same manner outside of your self-directed account, that $120,000 would have been subject to short-term capital gains tax, which would have meant you probably would have ended up with about $74,000 to reinvest instead of $120,000. You can see how important that tax-free element can be!
Tokens are one of the two most common blockchain-based digital assets, but they are not necessarily identical even though they are generally considered to fall under the broad umbrella of cryptocurrency. Tokens may also be referred to as “crypto tokens” and are a distinct digital asset class from the traditional cryptocurrencies, each with their own specific and unique blockchain. For example, many crypto tokens have been “built” on top of popular cryptocurrency Ethereum’s blockchain protocol, including CryptoKitties. They hold value and may be exchanged, and they can represent physical assets and more traditional assets, like real estate and art. If you are considering using your crypto IRA to trade tokens, you must be sure that the specific token you are considering is compatible with IRS requirements for assets held in a self-directed account.
Often you will hear different cryptocurrencies and crypto tokens promoted as “backed by blockchain.” However, this makes it sound as if there is a physical backup behind the asset. In reality, it is more accurate to say cryptocurrencies have a foundation in blockchain because their unique blockchain protocols are what enables them to be recorded and distributed but not edited, altered, deleted, or destroyed.
There are some crypto tokens that are backed by physical assets like real estate. These tokens have a foundation in the blockchain of a cryptocurrency (making them anonymous, giving them value, and, in theory, permitting their purchase, exchange, and sale) but are not, themselves, a unique cryptocurrency. Some investors use real estate-backed crypto tokens to raise capital for projects, and they may say that these tokens are “backed by real estate” meaning that the value of the coins will be based on the value of the real estate asset.
Critics of cryptocurrency often complain that its element of anonymity makes it too susceptible to money laundering and argue that anyone needing to hide their financial activities so thoroughly is likely up to no good. Investing in cryptocurrencies and even using them is not inherently money laundering. This is just a potential use for the blockchain that critics play up to emphasize their concerns about digital assets.
If tax-free cryptocurrency investing sounds too good to be true, then don’t feel bad: You’re not alone. Many savvy self-directed investors ask us this before they make the leap into this incredible emerging market. The truth is that “the catch” is that not every investor is a good fit for self-directed investing. Managing a self-directed retirement account gives you the power to manage your own future. It is now your responsibility to make wise investments rather than blindly trusting a faceless firm to take your money and hopefully generate enough returns that you can pay their fees and still have enough left for retirement. Not everyone can handle that kind of power.
The catch is this: If you cannot be trusted to make the financial decisions that are best for you, then you probably should not be using a self-directed retirement account. If you are the best curator of your own capital, however, then this strategy and this emerging market will serve you very, very well.
Drop us a line and tell us what you want to know. We’ll do our best to get you the answer ASAP!
Get a detailed, insiders’ viewpoint on how to avoid the same pitfalls that the most successful self-directed investors are avoiding using these powerful account structures? Sign up to receive our exclusive, free guide full of the latest information on how to best manage your digital currency investments and protect your assets. No one else offers this type of insight and education on this topic. Get yours today!
Cryptocurrency is a digital currency, also called a digital asset, that is designed to work as a medium of exchange. This means that the people who invented it wanted you to be able to exchange the currency for goods or services. Cryptocurrency behaves essentially the same way your dollars do, but cryptocurrencies are alternative currencies. This means that they are decentralized, anonymous, secure (in the sense that no one can track your spending), and automated.
Blockchain is a digital database distributed across the terminals (or nodes) of a network. The database is made up of multiple “blocks” that hold sets of information and are linked to other blocks but not necessarily accessible from one block to another.
IRA stands for individual retirement account. IRAs provide account owners with tax advantages as an incentive to save money for retirement.
A self-directed IRA, also often referred to as an SDIRA, is an individual retirement account (IRA) that can hold alternative investments like real estate or private equity. Self-directed accounts are managed by the account holder (owner) but administered by a self-directed IRA custodian, trustee, or administrator.
Yes. You can use a self-directed IRA, a self-directed Roth IRA, a self-directed 401K, or a Roth Solo 401K.
No. However, not all custodians permit their clients to invest in cryptocurrency. If a custodian will not administer the account, then you cannot invest in cryptocurrency until you change custodians.
That is fine! You can use your self-directed account to invest in more than one alternative asset or asset class.
That is fine! You can use your self-directed account to invest in more than one asset or asset class, including traditional assets like stocks, bonds, and mutual funds.
Not every IRA custodian has the same level of specialty. Since your custodian must administer your account, if they are not equipped to perform their jobs when dealing with self-directed assets, they may refuse to permit self-directed accounts.
Not every IRA custodian has the same level of specialty. Since your custodian must administer your account, if they are not equipped to handle cryptocurrency investments, they may elect to refuse to permit clients to invest in them.
Yes! Many self-directed investors use their self-directed IRAs to diversify into many alternative assets that offer much higher potential returns than “traditional” stock investments.
Yes! Click here to talk to an account advisor who can help you get started.
At TaxFreeCrypto.com, we know that it can be hard to invest in emerging markets when you have little or no experience in the sector. Thanks to our preferred partnership program managed in partnership with Equity Trust Company, the country’s biggest IRA custodian with more than 213,000 accounts holding more than $34 billion in retirement assets, you will have the option of working with leading cryptocurrency providers that can help you create an investing experience customized to your comfort level.
Not quite, but you will have dozens to choose from! Some cryptocurrency companies do not succeed in positioning their assets so that they meet IRS criteria for self-directed investing. Also, some companies call their products cryptocurrency but actually are engaging in violations of securities law. These assets typically will not be available for purchase on cryptocurrency platforms either.
At present, the emerging cryptocurrency market contains about nine distinct forms of cryptocurrency, including NFTs (which may be classified as collectibles and therefore not permitted in your SDIRA) and asset-backed tokens (which you must evaluate carefully to make sure you and the provider are abiding by securities laws). The five biggest “traditional” cryptocurrencies, those that are best-known, that have been around the longest, or that skyrocketed in value during the COVID-19 pandemic, are:
Bitcoin
Ethereum
Tether
Cardano
Binance Coin
When you invest in cryptocurrency using your self-directed IRA, your earnings will accrue in the account tax-free. This means that if you had invested in 10 bitcoins using an SDIRA in May 2021, when it fell to $30,000 (total investment of $300,000) and converted those bitcoins to dollars in September 2021, when it was trading around $42,000 (total gains of $120,000), then that $120,000 in returns would not be taxed as long as it remained in your SDIRA. Had you invested in the same manner outside of your self-directed account, that $120,000 would have been subject to short-term capital gains tax, which would have meant you probably would have ended up with about $74,000 to reinvest instead of $120,000. You can see how important that tax-free element can be!
Tokens are one of the two most common blockchain-based digital assets, but they are not necessarily identical even though they are generally considered to fall under the broad umbrella of cryptocurrency. Tokens may also be referred to as “crypto tokens” and are a distinct digital asset class from the traditional cryptocurrencies, each with their own specific and unique blockchain. For example, many crypto tokens have been “built” on top of popular cryptocurrency Ethereum’s blockchain protocol, including CryptoKitties. They hold value and may be exchanged, and they can represent physical assets and more traditional assets, like real estate and art. If you are considering using your crypto IRA to trade tokens, you must be sure that the specific token you are considering is compatible with IRS requirements for assets held in a self-directed account.
Often you will hear different cryptocurrencies and crypto tokens promoted as “backed by blockchain.” However, this makes it sound as if there is a physical backup behind the asset. In reality, it is more accurate to say cryptocurrencies have a foundation in blockchain because their unique blockchain protocols are what enables them to be recorded and distributed but not edited, altered, deleted, or destroyed.
There are some crypto tokens that are backed by physical assets like real estate. These tokens have a foundation in the blockchain of a cryptocurrency (making them anonymous, giving them value, and, in theory, permitting their purchase, exchange, and sale) but are not, themselves, a unique cryptocurrency. Some investors use real estate-backed crypto tokens to raise capital for projects, and they may say that these tokens are “backed by real estate” meaning that the value of the coins will be based on the value of the real estate asset.
Critics of cryptocurrency often complain that its element of anonymity makes it too susceptible to money laundering and argue that anyone needing to hide their financial activities so thoroughly is likely up to no good. Investing in cryptocurrencies and even using them is not inherently money laundering. This is just a potential use for the blockchain that critics play up to emphasize their concerns about digital assets.
If tax-free cryptocurrency investing sounds too good to be true, then don’t feel bad: You’re not alone. Many savvy self-directed investors ask us this before they make the leap into this incredible emerging market. The truth is that “the catch” is that not every investor is a good fit for self-directed investing. Managing a self-directed retirement account gives you the power to manage your own future. It is now your responsibility to make wise investments rather than blindly trusting a faceless firm to take your money and hopefully generate enough returns that you can pay their fees and still have enough left for retirement. Not everyone can handle that kind of power.
The catch is this: If you cannot be trusted to make the financial decisions that are best for you, then you probably should not be using a self-directed retirement account. If you are the best curator of your own capital, however, then this strategy and this emerging market will serve you very, very well.
Drop us a line and tell us what you want to know. We’ll do our best to get you the answer ASAP!
Get a detailed, insiders’ viewpoint on how to avoid the same pitfalls that the most successful self-directed investors are avoiding using these powerful account structures? Sign up to receive our exclusive, free guide full of the latest information on how to best manage your digital currency investments and protect your assets. No one else offers this type of insight and education on this topic. Get yours today!
Curious about how it all works and how to avoid the same pitfalls that the most successful self-directed investors are avoiding using these powerful account structures? Sign up to receive our exclusive, free guide full of the latest information on how to best manage your digital currency investments and protect your assets. No one else offers this type of insight and education on this topic. Get yours today!
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