Part 3 in Our Series on Self-Directed IRAs
As the crypto markets have evolved, so have the options to buy Bitcoin in your Self-Directed IRA. As discussed in our previous post, fees can vary widely among companies (i.e., setup, custodial, maintenance), as can the scope of the service offering. So above all, do your research carefully for an option that suits your individual tax and financial situation.
A sample process to buy Bitcoin in your Self-Directed IRA might look like this:
- Select a Self-Directed IRA provider. You may want to seek a provider that can also help you set up the LLC (corporate account) that will be needed to actually buy Bitcoin (or other crypto) for your Self-Directed IRA. Additionally, check what types of crypto the provider can handle.
- The LLC will either be a standard custodial setup, or a custodial setup with “checkbook control.” If you select “checkbook control,” you will need to set up a Self-Directed IRA checking account in the name of your LLC. You can write checks from this account to place investments into your Self-Directed IRA.
- Decide how your Bitcoin will be stored, i.e., select a custodial option such as self-custody or a crypto wallet.
- The LLC setup process requires choosing which state to set up in, and paying initial and annual state filing fees, among other considerations. It can take up to approximately 1 week to set up the LLC and Self-Directed IRA.
- Open a trading account with a crypto exchange for your LLC (this cannot be your personal trading account). This requires you to make an application to each crypto exchange that you want to open an LLC trading account with. Note that KYC and application approval times will vary among different crypto exchanges. Some crypto exchanges will open accounts more quickly than others, while others will have longer compliance review processes before granting (or denying) approval.
- If you already own Bitcoin or other crypto and you want to transfer the holdings to your Self-Directed IRA, you will need to first sell the holdings through a crypto exchange and wait for the funds to be transferred via traditional banking wire to your LLC Self-Directed IRA checking account. This part of the process can take up to a few weeks, depending on the banking channel.
- Your LLC Self-Directed IRA checking account can purchase Bitcoin (or other crypto) for your Self-Directed IRA via banking wire made to the crypto exchange where the LLC has a trading account. This process can take a few days or longer, depending on the banking channel. Following your purchase, storage of your Bitcoin is made according to your chosen custodian.
Remember to keep detailed records of all transactions into your Self-Directed IRA, and be careful to avoid IRS “Prohibited Transactions” (discussed in Part 2 of this series). As always, consult your tax advisor, attorney, and/or investment professional for guidance specific to your individual circumstances.
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Disclaimer: Lumina does not provide legal, tax, investment, or other professional advice. Please consult your own legal, tax, or accounting professionals for advice on compliance with applicable state and federal laws. This post is provided for informational purposes only, and is not intended to substitute for professional tax, accounting, audit, or legal advice. Information provided on Lumina is subject to change without notice.
