The IRS has ruled that digital currency has “an equivalent value in real currency.” It therefore can be used to purchase goods or services. Furthermore, the IRS Virtual Currency Guidance: Notice 2014-21 actually names bitcoin as one example of virtual currency, and declares “Bitcoin can be digitally traded between users and can be purchased for, or exchanged into U.S. dollars, Euros, and other real or virtual currencies.”
Since Bitcoin can be exchanged for dollars or other currencies, it can be used in place of dollars or other currencies to make investments and to fund your IRA or 401K. You should be aware though that the same IRS notice also states that, for Federal Tax purposes, bitcoin will be regarded as “property.” Since Bitcoin is considered property, a custodian will be necessary in order to comply.
This prompts the question should you consider funding your IRA or 401K with bitcoin? As Bitcoin gains greater acceptance for personal and business transactions across the globe, its value stands to grow.
The value of a traditional IRA, a Bitcoin Roth IRA, or a self-directed 401K invested in an IRA stands to grow accordingly. A notable benefit of having a Bitcoin IRA or 401K is that you’re invested in a non-correlated asset. In other words, Bitcoin’s value can’t be dragged down by economic forces that affect more traditional assets. As more consumers and investors embrace bitcoin globally, its growing value won’t be compromised by a bearish stock market, falling oil prices, or a weakening dollar.
Key Distinctions Between a 401K, a Roth IRA, and a Traditional IRA
The main difference between a 401k, a Roth IRA, and a traditional IRA are tax treatment, investment options, and possible employer contributions. Here are some specifics attributes for each type of retirement plan.
- A 401k is an employer-sponsored deferred-income plan. The employee allocates a portion of each paycheck to their plan. These contributions occur before income taxes are deducted. As of 2023, the limit for annual 401(k) contributions is $22,500 for those under age 50. Ages 50 and older can contribute an additional $7,500 per year.
- A Roth IRA is set up directly between an individual and an investment firm; the individual’s employer is not involved. Unlike the 401k, after-tax money is used to fund a Roth IRA. Also, contributions are much smaller than they are for a Bitcoin IRA. In 2023, the annual maximum contribution is $6,500 for those under the age of 50, while those age 50 and up can contribute an additional $1,000 for a total of $7,500 per year.
- In most cases, traditional IRAs are tax-deductible. As of 2023, individual contributions to traditional IRAs cannot exceed more than $6,500, or $7,500 if you are 50 or older.
Transferring a 401K, Roth IRA, or Traditional IRA into a Bitcoin IRA
The process for transferring a 401K, Roth IRA, or a Traditional IRA into a Bitcoin IRA requires turning your retirement account into a self-directed IRA. Working with BitcoinIRA.com, we manage the whole process for you. Here are the steps:
>> Complete Your Application for a new BitcoinIRA.com account to get started.
>> Transfer your IRA or 401k funds: We request a transfer from your old retirement account into your Bitcoin IRA once your account has been set up.
>> Buy Your Bitcoins: When your funds arrive we schedule a call to perform a trade so you can buy the requested digital currencies
>> Store Your Funds in an Exclusive Offline Cold Storage BitGo Wallet
We strongly recommend, for specific answers to any questions about the tax implications of your IRA, that you consult your qualified tax advisor.
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