Cryptocurrency may have started on the fridges of our growing digital economy, but the investment success stories of early adopters have made it a dominating force in our news cycles and a key asset of interest among investors looking for an alternative avenue for growth–volatile though it may be. 

Anyone can enter into the cryptocurrency exchange, but if you want to add it to your retirement strategy, you should know a few things. Find out how you can create a crypto IRA and what you need to do to get started. 

Can I Use My IRA to Buy Crypto Currency

If you have a traditional IRA, Roth IRA, or any standard type of IRA account, you won’t be able to invest in cryptocurrency. So, to build a crypto IRA, you first need to open a self-directed IRA (SDIRA). 

On the surface, an SDIRA is similar to other IRAs. You invest money into the account and, in turn, into investment assets in hopes of growing your retirement account. However, each type of IRA is governed by IRS rules and requirements, including required minimum distributions.

What sets SDIRAs apart from their more traditional counterparts is asset availability. Under a basic IRA, investors are limited to common exchange assets, like stocks, bonds, and mutual funds. An SDIRA expands asset options to include everything from real estate and livestock to, in this case, cryptocurrencies. 

In other words, if you want to start a crypto IRA, the first step is to open a self-directed IRA.


Consult with Horizon Trust

How To Open a Self-Directed IRA

Opening a self-directed IRA is easy, but there are some things you’ll need to do first.

Select a self-directed IRA custodian. 

Like other investment accounts, a self-directed IRA account can only be opened with a custodian or trustee that the IRS has approved to hold IRA assets. For standard IRAs, custodians are often banks or other financial institutions, like Fidelity or Vanguard. However, few of those financial organizations allow for self-directed IRAs. 

If you want to open an SDIRA, you need to find a custodian, like Horizon Trust, who is approved to hold self-directed investment accounts. 

As you review your options, look for a custodian who is experienced in cryptocurrency investments. It’s also smart to review and compare custodian fees, transaction times, and overall reviews. 

Fund your account

After you find a custodian that meets your needs, it’s time to open the account. Like other investment accounts, you’ll need to provide basic information, like your name, social security number, and banking information. You’ll also need to fund your account. 

If you have an existing 401k or IRA account, you can use a self-directed IRA rollover to move funds from one account to fund your new SDIRA account. The process can vary by custodian, but generally, this means requesting a transfer via your account holder’s website, filling out paperwork, or making a phone call to your financial institution. 

If you don’t have an existing investment account, you can fund your SDIRA account by transferring funds from your existing savings or checking account. 

A reputable SDIRA custodian can help you with this process. 

Open a Cryptocurrency Wallet

Whether you want to invest in Bitcoin, Dogecoin, Ethereum, or an up-and-coming crypto coin, you’ll need to open a crypto wallet in the name of your SDIRA. This generally requires you to create an LLC in your IRA’s name, which will give you checkbook control and allow you to execute crypto transactions. 

Like your search for a custodian, it’s best to thoroughly research any crypto wallet provider before opening an account. Your custodian can suggest or help you identify and open a crypto wallet. 

Self-Directed IRA Crypto Rules 

Crypto investing is fairly new, at least when compared to the existence of other fiat currencies, but that doesn’t mean the IRS hasn’t created a system of rules to govern transactions. Here are a few things to remember if you use your IRA to invest in crypto.

  • Earnings can only be held in the IRA account. So, if your investment yields a big return and you want to cash in early, you’ll have to withdraw from your IRA and pay any applicable fees and penalties.
  • You must reveal any transactions at tax time. The IRS Form 1040 now includes a question that asks about your crypto transactions. You don’t need to report the initial purchase of crypto coins, but you do need to report any subsequent transactions.   
  • Contributions made to your IRA to invest an asset, including crypto, must not exceed the IRS contribution limits for the given tax year. Currently, the IRS caps investments at $6,000 annually for those under the age of 50 and $7,000 for those over 50 years of age. 
  • You can’t move cryptocurrency between your personal wallet and your SDIRA wallet.
  • Like other investment assets and earnings, you don’t need to report gains if the funds remain in your account. However, if you remove those funds, you’ll need to follow the appropriate tax reporting procedures, which will vary based on the type of SDIRA you have, such as a traditional SDIRA or a Roth SDIRA. 

If this applies to you, discuss your requirements with your custodian to ensure you follow IRS rules. 

An SDIRA allows you to invest in various assets, including cryptocurrencies. If you’re considering investing in cryptocurrency or other alternative assets, contact Horizon Trust. We can help you open an SDIRA account, open a crypto wallet and walk you through the process.