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Did you know that in 2014 the US government allowed the American public to invest in cryptocurrency with an IRA? With a self-directed IRA, you can realize potential capital gains tax-deferred or tax-free (depending on account type) while diversifying your conventional market retirement portfolio with inflation-resistant assets. There are a few differences you should be aware of when investing with a Self-Directed IRA (SDIRA) versus cash in your bank account. Below we go into more detail about how the process works and answer some frequently asked questions.
What are the steps to get started?
Step 1: Find a custodian that matches your retirement and investment goals. Only a handful of SDIRA custodians offer digital currency custody, including Preferred Trust Company. You will find that each custodian varies depending on the fees they charge, how you can invest in the digital currency, and the storage of the digital asset.
2nd step: Decide how you want to invest in the digital asset. For example, at Preferred Trust Company, you can take two paths: work with an independent digital currency broker and Preferred Trust Company to direct your investments through a standard SDIRA account to open an IRA LLC account.
Step 3: Once you have created your SDIRA or IRA LLC account, you can transfer or transfer your assets from another qualified account and / or make a contribution to your account so that you have the necessary funds to start investing in digital currency. .
Step 4: If you are working with a digital currency broker, you will be working in conjunction with the broker and custodian SDIRA to buy, manage and store your cryptocurrency investments. If you manage your investments through an IRA LLC, you can engage in a cryptocurrency exchange to buy, sell, and store on your own terms.
Why invest through a digital currency broker?
A digital currency broker works with you, the SDIRA custodian, and the cryptocurrency exchange platform. Digital currency brokers will typically work with you to choose the type of cryptocurrency that matches your digital currency investment goals. At your request, the broker will then facilitate your investment with the SDIRA custodian and purchase the digital currency on your behalf on a cryptocurrency exchange.
It is important to note that since you are working through a digital currency broker and SDIRA custodian, this adds an element of delay that could potentially affect the price of your asset when it is bought or sold. in stock exchange. As with any business you choose to invest with, you should do your due diligence and research the digital currency broker before committing to any investments through them.
Why invest through an SDIRA IRA LLC?
For the more sophisticated investor, you may be more qualified to buy and sell cryptocurrencies independently of a digital currency broker. This would give you the ability to buy and sell faster, and you would avoid paying additional commissions and brokerage fees. If you do not yet have an IRA LLC setup, there will most likely be a cost to establish the LLC and a carry fee to maintain its LLC status.
Once your IRA LLC is created, you are not limited to investing in cryptocurrency, the door is open to all alternative investments permitted within an SDIRA. To learn more about how to open and manage an IRA LLC, click here to download our FREE guide “Achieving Ultimate Control: Alternative Investing with an IRA LLC”.
However, for increased freedom there is an even greater increase in responsibility on your part. You are solely responsible for protecting your IRA from fraudulent investments and for ensuring that you manage your investments in accordance with IRS regulations, including being aware of and not engaging in prohibited transactions. Engaging in a prohibited transaction, even in the event of an accident, will result in disqualification from your IRA.
How is my cryptocurrency stored?
Storage depends on the SDIRA custodian and whether you are investing through a digital currency broker or an IRA LLC. For example, at Preferred Trust Company, if you invest through a digital currency broker, your cryptocurrency is stored on a ledger device *. Your “private” key will be placed in a separate cold room in an undisclosed repository, without your knowledge even to provide an additional layer of security to your assets.
When you invest through an IRA LLC, it is up to you to store your asset in a secure location, whether it is third party hot or cold storage (it cannot be held by you personally. ).
* A register device is a cold storage portfolio. These wallets are dedicated USB devices designed to store and send digital currencies offline, making malicious attacks nearly impossible. These devices have proven to be the best security for long term investors.
What should I consider before investing in cryptocurrency with my SDIRA?
- Your knowledge of digital currency.
- Your risk tolerance.
- The pros and cons of investing through a digital currency broker or an IRA LLC.
- Perform due diligence on the digital currency broker.
- Although digital currency has become a common use for the purchase of goods and services, when investing in digital currency through SDIRA, it is considered an investment.
SPECIAL PROMOTION: Until December 31, 2021, Preferred Trust give up the first year start-up and administration costs for all new accounts. Start today by completing an online application, no promotional code is required to take advantage of this offer. You have more questions? Call us at 888-990-7892 or CLICK HERE to schedule a no-obligation consultation to start securing your financial future today!