With the value of cryptocurrency like bitcoin going through the roof in 2017, a lot of investors are looking at ways of taking advantage of this period one of the things they have come up with his investing in a cryptocurrency IRA. Specifically come up there look at the self directed IRA although some also considered the Solo 401(k) Plan. While there are certainly excellent benefits to doing this, it is very important that you know all there is about using cryptocurrencies for a retirement fund.
Understanding the Ins and Outs of the Cryptocurrency IRA
First of all come out you need to get to know what a cryptocurrency is. Essentially, it is a type of decentralized digital currency that exists on the basis of cryptography. Cryptography means that communication is conducted outside of third party involvement. This ensures it is almost fully anonymous, private, and highly secure. The consequence of this decentralization is that the value is set solely by the participants in the market.
Perhaps the best known cryptocurrency is Bitcoin comma which was the first to develop this peer to peer network period it remains the standard that other cryptocurrencies try to live up to. All other cryptocurrencies are referred to as Altcoins, which have tried to set themselves apart as different and even better versions of bitcoin. The most popular ones are Ethereum, Litecoin, Ethereum Classic, Dash, and ZCash period however, there are thousands of cryptocurrencies out there.
From a tax point of view, bitcoin are not considered as currency. Notice 2014-21 was issued by the IRS on March 25th, 2014 and this set cryptocurrency is a type of property. This means that general tax principles apply when investing in this currency. Essentially, according to the IRS, selling this corn is classed as a capital asset, just like real estate or stock. It may also be subjected to long-term capital gains tax if someone holds their cryptocurrency for a period of 12 months or more. But this also means is that detailed transaction records must be maintained buy the cryptocurrency holder.
Of interest is the fact that the IRS does not mention what someone can invest in if they have an IRA. The only thing it mentions is what people cannot invest in. Certain people are prohibited from having an IRA as they are listed as disqualified persons. Disqualified persons tend to be individuals who are a lineal descendant, ancestor, or entities with a management interest of the original IRA holder. The IRS also prohibits certain types of investments, mainly being collectables and life insurance. What this means is that it is perfectly legal to include cryptocurrencies in your retirement plan. That said, finding a custodian who accepts them is a little bit more complicated due to the fact that cryptocurrencies remain quite new and not everybody understands them.However, if you find a custodian who is happy to include cryptocurrencies in an IRA or other investment plan, and they are certainly worth your consideration.
