Common Rules and Regulations for Bitcoin in IRA

When you own Bitcoin in an IRA, you are free to exchange them for other cryptocurrencies. Since Bitcoin is a more stable currency, you can exchange it for any other cryptocurrency which is volatile at a good rate. Lately, many investors have purchased Bitcoin in their retirement accounts, such as SEP-IRA, Solo 401k, and Traditional IRA. 

You have to obey many rules and regulations before investing in Bitcoin in an IRA. They vary from one state to another and from one country to another. However, here are the most common concepts, rules and regulations for Bitcoin in IRA from Viva Capital!

How Bitcoin Works

Trying to figure out how Bitcoin works in an IRA can be tricky for investors who are unfamiliar with the virtual currency. You must first understand that Bitcoin is not stock, it’s not a bond, and it’s not currency. Even though most people call it “digital currency,” it does not have legal tender status in any jurisdiction. Technically speaking, it is more like a commodity than anything else as there are no inherent ties between this virtual asset and any country’s central bank.

How do you add Bitcoins to an IRA?

Under current regulations, you can purchase and hold Bitcoins in your self-directed IRA once you have established your IRA with a custodian or trustee. You will need to check with the custodian or trustee that you wish to use to ensure that they will allow for a self-directed IRA. The IRS and their regulations determine what you can do with your IRAs. Make sure that your custodian knows any rules and regulations before you begin making any investments. If it is not specified in their contract, ask if they will allow for a self-directed IRA before proceeding.

Treating Bitcoin in IRA as Property

According to the IRS, property transactions using bitcoins are reported as capital gains and losses. The same guidelines apply to transactions processed through a 401(k) plan or IRA. The capital gains or losses will be reported as part of your income tax return. If you are making contributions using Bitcoin in an IRA, then the contribution amounts will have to be included in your gross income for tax purposes. This is because it is considered as part of your self-employment income.

Tax Deductible IRA Contributions

You can contribute up to $5,500 per year using a Bitcoin in IRA account as a taxpayer, or $6,500 if you’re over 50. However, you can put in much more than this amount if you use bitcoin to pay for your contribution. You can contribute as much as you please as long as you pay for it with cryptocurrency. If you are under the age of 50, this does not apply if your total income exceeds $116,000 (or $196,000 if married).

Account Distributions

Your Bitcoin in an IRA account is only taxed when distributed from your account during retirement. At this time, all distributions are fully taxable.

Conclusion

Now that you know the common rules of investing in Bitcoin in an IRA, ensure compliance with regulations for seamless investment!