Updated: Sep 7
Question 5: Is self-dealing of digital currency investments in a Self-Directed IRA allowed?
We have seen a significant increase in digital currency being obtained through a Self-Directed IRA. When shifts of this nature occur, it tends to draw the attention of regulators. When obtaining digital currency through a qualified plan or a Self-Directed IRA the intended use is for retirement savings. A Self-Directed IRA (unless in a Checkbook, LLC owned by the IRA) does not provide for the flexibility for the IRA owner to buy and sell digital currency as it requires the IRA custodian to be involved in the transaction cycle in some capacity or it could be considered self-dealing, which may disqualify your IRA from the applicable tax shelter.
The trajectory of digital currency is that it will be a mainstream use of funds to buy goods and services. This mainstream approach is muddying the waters of some self-directed custodians who are granting clients a more hands-on approach to having access to the digital currency investments in an IRA, which may come into question with the IRS who has set strict guidelines and governance that a custodian must be involved in the transaction and the custody of the retirement assets.
As millionaires are made through the investments of digital currency in Traditional and Roth IRAs and taxes are not owed, it will be interesting to see how long it takes for the IRS to step in and question the integrity of the last few statements about its governance.
Missed one of the questions? Click Here to download the "Digital Currency: Top 5 Questions You Should Ask When Investing with an IRA" whitepaper.