Dec 14

IRA Financial Trust – Your Bitcoin IRA Custodian

IRA Financial Trust Company has helped hundreds of clients use their retirement funds to invest in cryptocurrencies, such as Bitcoins and Ethereum.

IRA Financial Trust is proud to offer Checkbook IRA custodial services along with its full service IRA administration services all for one low price without any transaction or asset valuation fees. IRA Financial Trust Company is one of the few full-service IRA custodians who specialize in establishing Checkbook Control IRA LLC accounts, which allow for Bitcoin and other cryptocurrency type investments. With IRA Financial Trust, buy, hold, or sell cryptocurrencies from a local LLC bank account and have total control over your cryptocurrency investment.

What is Cryptocurrency?

For a growing number of investors, cryptocurrency is not only the future of money, but also an attractive and potentially profitable investment asset, though highly risky and volatile. Bitcoin has become the public’s most visible and popular cryptocurrency and it is also among the oldest, having first emerged in 2009. Over one year, the market capitalization for Bitcoin has increased enormously, from around $7.16 billion in May 2016 to $27.9 billion today. As the price of Bitcoin has risen over the last year or so has the confidence among investors, including retirement account investors.

IRA Financial Trust - Your Bitcoin IRA CustodianThe process of buying cryptocurrency is still somewhat unclear for a lot of people. It’s not a stock or a traditional investment. For most people in the U.S., Coinbase would be the easiest option to buy cryptocurrency, such as Bitcoins, Ethereum, or Litecoin. After verifying the account, the investor can add a number of payment methods including credit or debit cards, U.S. bank accounts, or even wire transfers of funds. Cryptocurrency transactions are not anonymous and the identify of the currency owner can be traced back to a real-world identity.

As a cryptocurrency, Bitcoin is generated through the process of “mining” – essentially using your computer’s processing power to solve complex algorithms called “blocks.” One can buy and sell Bitcoin on an exchange, much like a physical currency exchange, converting wealth from Bitcoin to US dollars to other national currencies, back to dollars or Bitcoin. And that’s how money is made.

Tax-Treatment of Buying Cryptocurrency with Non-Retirement Funds

Even though Bitcoin is labeled as a “cryptocurrency”, from a federal income tax standpoint, Bitcoins and other cryptocurrency are not considered a “currency.” On March 25, 2014, the IRS issued Notice 2014-21, which for the first time set forth the IRS position on the taxation of virtual currencies, such as Bitcoins. According to the IRS Notice, “Virtual currency is treated as property for U.S. federal tax purposes.” The Notice further stated “general tax principles that apply to property transactions apply to transactions using virtual currency.” In other words, the IRS is treating the income or gains from the sale of a virtual currency, such as Bitcoins, as a capital asset, subject to either short-term (ordinary income tax rates) or long term capital gains tax rates, if the asset is held greater than twelve months (15% or 20% tax rates based on income). By treating bitcoins and other virtual currencies as property and not currency, the IRS is imposing extensive record-keeping rules – and significant taxes – on its use.

Advantages of Using a Self-Directed IRA LLC to Invest in Cryptocurrency

The IRS tax treatment of virtual currency has created a favorable tax environment for retirement account investors. In general, when a retirement account generates income or gains from the purchase and sale of a capital asset, such as stocks, mutual funds, real estate, etc., irrespective of whether the gain was short-term (held less than twelve months) or long-term (held greater than twelve months), the retirement account does not pay any tax on the transaction and any tax would be deferred to the future when the retirement account holder taxes a distribution (in the case of a Roth IRA or Roth 401(k) plan no tax would be due if the distribution is qualified). Hence, using retirement funds to invest in cryptocurrencies, such as Bitcoins could allow the investor to defer or even eliminate, in the case of a Roth, any tax due from the investment. Note – retirement account investors interested in mining Bitcoins versus trading, could become subject to the unrelated business taxable income tax rules if the “mining” constituted a trade or business.

How to Use a Self-Directed IRA LLC to Invest in Cryptocurrency?

Working with IRA Financial Trust to purchase cryptocurrencies, such as Bitcoins, Ethereum, Ethereum Classic, or Litecoins with a self-directed IRA is quick and easy.

1. Establish a self-directed IRA account with IRA Financial Trust Company.

2. Rollover of retirement funds, cash or in-kind, tax-free to new self-directed IRA account.

3. The IRA assets will then be transferred to the LLC tax-free in exchange for 100% interest in the newly established IRA LLC.

4. You as manager of the LLC will open a bank account for the LLC at any local bank. IRA Financial will draft LLC Operating Agreement identifying you as manager of the LLC and the IRA as the sole member.

5. You as manager of the LLC will then have checkbook control over all the assets/funds in the IRA LLC to make the cryptocurrency investment.

6. Since the LLC is owned 100% by an IRA, it will be treated as a disregarded entity for tax purposes. No Federal income tax return is required to be filed and all income and gains from the cryptocurrency investment will flow back to the IRA without tax.

Cryptocurrency investments, such as Bitcoins, are risky and highly volatile. Any investor interested in learning more about Bitcoins should do their diligence and proceed with caution.

IRA Financial Trust Company was founded by tax attorneys who worked at some of the largest law form in the world, including White & Case LLP and Dewey and LeBoeuf LLP, and have helped over 15,500 clients self-direct their retirement funds through their ownership in the IRA Financial Group LLC.

IRA Financial Trust Company is a regulated non-banking financial institution that is made up of retirement tax specialists committed to helping you make Self-Directed retirement investments quickly while minimizing annual fees. IRA Financial Trust is a non-banking IRA custodian.

The IRA Financial Trust Advantage

· One low annual fee

· No transaction or annual account asset fees

· IRA Financial Group has helped over 15,500 clients establish Self-Directed retirement accounts totaling nearly 4.9 billion dollars since 2010

· Work with Self-Directed IRA experts

· Experience our Continuing Retirement Education (CRE) Platform

· Invest in what you know and understand from the comfort of a local bank

· Specializing in Checkbook Control Self-Directed IRAs

To learn more about the advantages of using the IRA Financial Trust to establish your Self-Directed IRA, please contact a Self-Directed retirement expert at 1-800-472-1043.

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Apr 13

Using a Self-Directed IRA to Invest in Bitcoins

Bitcoin is usually described as virtual currency. That’s useful shorthand, but is it really money? And should it be taxed as if it is? Or is it a capital asset? How about a commodity? Or what about a collectible? Most commentators have viewed bitcoins either as a virtual type of currency or capital asset. However, the potential still exists that the IRS could argue that bitcoins do not satisfy the main functions of money and acts more like a stamp or other collectible than a currency.

In Notice 2014-21, the IRS stated that it would tax digital money such as bitcoin like property, not currency. On March 25, 2014, the IRS issued Notice 2014-21, which for the first time set forth the IRS position on the taxation of bitcoins. According to the IRS, “Virtual currency is treated as property for U.S. federal tax purposes,” the notice said. “General tax principles that apply to property transactions apply to transactions using virtual currency.” By treating bitcoins as property and not currency, the IRS is providing a potential boost to investors but it is also imposing extensive record-keeping rules—and significant taxes—on its use. In a notice, the IRS said that it generally would treat bitcoin held by investors much like stock or other intangible property. If the virtual currency is held for investment, any gains would be treated as capital gains, meaning they could be subject to lower tax rates. The top long-term capital gains tax rate is 20%, while the top ordinary income-tax rate is 39.6%, although add-on taxes often make both rates somewhat higher. But as capital investments, loss deductions from bitcoin often would be limited, whereas currency losses can be easier to deduct up front.

The IRS guidance in Notice 2014-21 targets a new crop of digital currencies used by a small number of merchants, consumers and investors. Bitcoin, the best-known of the group, is created using a computer process and can be exchanged for dollars online.

Although IRS Notice 2014-21 did not address whether bitcoins would be considered an approved investment for retirement purposes, the fact that the Notice is treating bitcoins as property, like stock, and not as a collectible, it should be clear bitcoin is an approved investment for IRAs and 401(k) plans and would not violate IRC 408(m).

Using a Self-Directed IRA to Invest in BitcoinsFor many retirement investors, the investment in bitcoins via a Self-Directed IRA LLC could prove a very tax efficient manner for transacting with bicoins as use of bitcoin in a retail transaction typically would be a taxable “event” for many buyers, requiring them to figure out the gain they had made on the virtual currency—and eventually pay tax on it, whereas, the gains would likely not be subject to tax with retirement funds. However, the IRS stated in the Notice that bitcoin “miners”—including people who use computers to validate bitcoin transactions or maintain transaction ledgers—also would be subject to tax on payments received in bitcoin and that “mining” that constitutes a trade or business would be subject to self-employment taxes. Accordingly, dealers in bitcoin—much like dealers in other types of property—would be subject to different tax principles than individual investors, and their gains generally would be taxed as ordinary income.

Notice 2014-21 is important because it sets forth some clarity by the IRS about the tax treatment of virtual currencies, but it also raised new questions, such as what government body would be in charge of regulation, as well as if purchased via a Self-Directed IRA, how would the currency be held by an IRA custodian.

With IRA Financial Group’s self-directed retirement plans, retirement account investors have the ability to make traditional as well as alternative asset investments, such as real estate and bitcoins, in a tax-deferred or tax-free basis.

Why Work With the IRA Financial Group?

The IRA Financial Group was founded by a group of top law firm tax and ERISA lawyers who have worked at some of the largest law firms in the United States, such as White & Case LLP, Dewey & LeBoeuf LLP, and Thelen LLP. Over the years, we have helped thousands of clients establish IRS compliant Self-Directed IRA LLC solutions. With our work experience at some of the largest law firms in the country, our retirement tax professionals’ tax and IRA knowledge in this area is unmatched.

To learn more about using a “Checkbook Control” Self-Directed IRA LLC to make bitcoin and other investments without tax, please contact one of our IRA Experts at 800-472-0646 for more information.

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