Cryptocurrencies have been making the news virtually every other day. And given that many cryptocurrencies have had an incredible price rally in the last year alone, you – like many other individual investors – may be tempted to buy-in.
But how best can you do it?
You can invest in cryptocurrency assets through the all-familiar individual retirement account (IRA). But here is the thing. You will need a cryptocurrency IRA, also known as a self-directed IRA, to invest in this alternative asset class because your conventional IRA will not allow it.
That said, here is a walk-through on how you can add crypto to your crypto IRA account:
Step 1: Open a Self-Directed IRA
The first thing you need to do is choose where to open your account. That means identifying a custodian or service provider to host your self-directed IRA and allow you to hold crypto. Like a brokerage account for investing in stocks, you will open your account via a safe e-sign application.
Some of the details you will have to provide are your legal name, address, SSN, and banking details.
Remember to research your crypto IRA custodians extensively. Check for the account types, exchanges, and cryptos available to ensure they align with your investment objectives. Apart from that, assess the fees because they can add up over time and impact your ability to achieve your retirement goals.
Step 2: Create a Crypto Wallet
A crypto wallet is pretty much the same as a safe deposit box that holds the information necessary to buy, sell and use crypto. Several wallet providers exist in the market, each offering varying safety.
That said, before establishing one, be sure to talk to your self-directed IRA custodian to understand their preferred strategy. Some of them allow you to create a wallet directly in the name of your IRA. Others demand that you go through the intermediary step of creating a limited liability company (LLC) within your IRA to hold your crypto wallet.
Step 3: Fund Your Crypto IRA Account
Next, fund your crypto wallet with money from your IRA only. You cannot mix your IRA money or its wallet with money from another place. Mixing your monies is against IRS regulations and will cause significant tax issues.
Depending on which tax platform you use, there should be step-by-step walkthroughs to help you figure out how to approach your funding without raising red flags from the IRS. In fact, you should even be able to submit your income tax return absolutely free also.
Keep in mind; you cannot use personal funds and then repay yourself from the IRA. All of the money that goes into creating or funding your crypto wallet should come directly from and return directly to your IRA (or LLC) with no diversions along the way.
Step 4: Complete a Crypto Allocation Order
The last step is to complete a cryptocurrency allocation order. This way, you get to hold the particular crypto you want, whether Bitcoin, Ether, Doge, and so on.
Add Crypto to Your IRA Today
The cryptocurrency market has come a long way, and today, it is easier for even an individual investor to get involved. A crypto IRA is an excellent way to get a slice of the action if you consider the substantially higher returns you could get from crypto investments and the diversification you get for your retirement portfolio.
Just follow these steps highlighted above to get started on your journey.
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