The Good, The Bad, and The Ugly of Digital Currency - Part 6
Updated: Sep 1, 2022
This series of articles are intended to shine a light on all the bullshit out there about digital currency investment in your self-directed IRA. Decentralized IRA – Invest in digital currency and never pay taxes! If this is your goal, then you need to keep reading.
How is the digital currency stored or controlled?
The digital currency under custody with Preferred Trust Company is stored on a secure hardware device which stores the user’s private keys (critical piece of information used to authorize outgoing transactions on the blockchain network). The main principle behind hardware wallets is to provide full isolation with private keys to significantly reduce hacking crimes. When you own digital currency, what you own is a private key. Your digital currency is associated with public/private keys. Your digital currency does not physically exist on any device – not even your Ledger hardware wallet. Hardware wallets store and safekeep your private keys, so that you can be the custodian of your own money. Or, in the case of Preferred Trust Company, they are the custodian of your qualified funds through a hardware wallet assigned to you solely. When you invest through an IRA LLC, it is up to you to store your asset in a secure location, whether it be hot or cold storage through a third-party (it cannot be held by you personally). So here we are preaching cold storage and now you are telling me I personally cannot do that, but Preferred Trust Company can. Yes, that is what we are saying. This is where the government sticks their nose in and sets the rules and regulations that must be followed to not disqualify your IRA. As a licensed and regulated custodian, we can perform the task of holding custody. You however, as the IRA account owner cannot. It is called self-dealing, and it is prohibited under IRS law. Follow the rules and you will never have a problem. Choose not to follow the rules, then do not blame us when your IRA is distributed to you, and you end up paying the tax penalties and fees.