Technology has changed the world and continues to do so. People often don’t consider just how much it has change, which is tremendous. Just two decades ago, we were incredibly excited about the release of Snake 2 on Nokia phones. Today, we use our smartphones to start a bitcoin IRA! No longer do we need to visit an investment firm in person, no longer are we limited by stocks and bonds. We can now invest in cryptocurrencies, and we can do so from the comfort of our own homes!
Understanding the Bitcoin IRA
The IRA – Individual Retirement Account – first became available in 1974. Since then, we have always used traditional forms of investments to fund them, including physical assets with value, certificates of deposits, bonds, and stocks. However, there has recently been a significant change in keeping with the digitalization of the world. Specifically, the IRS now allows digital currencies to be included in these accounts as well.
What Is Bitcoin?
Bitcoin was the first type of cryptocurrency in the world, started in 2009. Since then, numerous others have been developed as well, but Bitcoin continues to be the best known and most popular. It is a decentralized form of currency that exists on an online public ledger, known as the “blockchain”. This ledger is not updated by banks or governments, but rather by a peer-to-peer network that is managed by consensus.
How to Start a Bitcoin IRA
There are two main ways for you to start a bitcoin IRA:
- You can completely do it yourself. This means that, in order to be compliant with IRS regulations, you have to set up an LLC.
- You can ask an expert custodian to do it for you.
If you want to go for the first option, it is very important that you are fully compliant with the IRS regulations, which means setting up an LLC. This is quite risky, not in the least because there are many different “prohibited transactions” that you have to be aware of. If you make a prohibited transaction, it means your assets will no longer enjoy tax protection. From a legal perspective, you and the IRA are two separate entities that act separately as well. In so doing, the IRS ensures you do not get double tax benefits.
Most would agree, therefore, that it is far easier to set up an account with a custodian. They will ensure all your legal affairs are in order and they will keep track of all your investments and contributions. The downside is, however, that you will have to pay fees for these services. Because there aren’t many bitcoin IRA custodians out there yet, you may find that these fees can be incredibly high. Hence, if this is the route you want to go down, then you must take the time to compare the different options that are available to you. Make sure you not only look at their fees and charges, but also their security and storage methods so that your bitcoin investments are protected.