Bitcoin IRAs are no different from any other IRA. You fill out the same forms when you invest. You can choose the product that’s right for you, whether it be a traditional IRA (pre-taxed assets) a Roth IRA (after-tax assets) if you’re under 70 ½. Of course, you can only take distributions out of your IRA or traditional or Roth without a penalty if you’re at least 59 ½. Employees invested in an employer’s 401K are subject to the same penalties if they take distributions before they’re 59 ½.
Employer sponsored 401ks and or your IRA must be self-directed for you to choose Bitcoin as an investment. The same holds true for precious metals, alternative investments and collectibles. As the owner of the plan you are able to choose from a wide variety of options including Bitcoin without losing the tax deferred status for your retirement account.
According to the IRS (Virtual Currencies) like Bitcoin fall under the category of “property” and are treated as such for all tax purposes. IRS Virtual Currency Guidance: Notice 2014-21 “an equivalent value in real currency.” Bitcoin is widely accepted and used to purchase both goods and services, worldwide “Bitcoin can be digitally traded between users and can be purchased for, or exchanged into U.S. dollars, Euros, and other real or virtual currencies.”
The IRS declaration allows investors to use Bitcoins in tax deferred accounts such as Individual Retirement Accounts, Self Employed Pension Funds and certain Self Directed 401-K’s as long as the individual or Trust uses the services of a Government approved and regulated IRA custodian. Since Bitcoin can be exchanged for USD or other fiat currencies, that it can be used in place of dollars or other currencies to make investments and to fund your IRA, SEP, or 401K. The same IRS notice also states that, for Federal Tax purposes, Bitcoin will be regarded as “property.”
Each person must make an assessment of their own financial situation and decide if Bitcoin fits in to your financial planning portfolio. Bitcoin which is being commonly referred to as Gold 2.0 has many of the attributes of Gold which is well known as an inflation hedge and store of wealth.
The value of your IRA, may increase much faster by supplanting Gold, Silver or other precious metals with Bitcoin. Investors worldwide are only just learning about this global phenomenon, its ever increasing value as a new and exciting asset class that won’t be dragged down by falling stock markets, depressed oil prices, or the weakness of global currencies.
Please consult a licensed tax professional about the tax implications for your personal IRA, SEP and or 401-k.