What is a bitcoin IRA?

A bitcoin IRA – or Individual Retirement Account – is like any other IRA, subject to the same IRS regulations. But a bitcoin IRA simply means that the account holder has chosen to fund his or her IRA with bitcoin instead of, say, straight cash, gold, bonds, art work or some other kind of investment vehicle.

Can I maintain an IRA that has bitcoins along with other types of investment vehicles like gold or stocks?

Yes. Remember, though, that upon initiation or distribution, depending on whether you have a traditional or Roth IRA, each investment vehicle in your IRA may have to be treated differently for tax purposes (bitcoin, for instance, is now treated as property according to the IRS). We strongly recommend, for specific answers to any questions about the tax implications of your IRA, that you consult your qualified tax advisor.

Why do I need a custodian if I maintain a bitcoin IRA?

For federal tax purposes, the IRS mandates that qualified IRAs have a custodian to administer the account. You can read more about some of those rules in IRS Publication 590 and IRS Virtual Currency Guidance.

If I have bitcoin in my IRA, is it handled the same way if my IRA is a traditional IRA or a Roth IRA?

Yes, except with a traditional IRA you take care of your taxes upon distribution. With a Roth IRA, you take care of your taxes upon initiation of the account.

In a Bitcoin IRA, can I take early distributions of my funds (before I reach 59 ½) ?

Yes, but as with other types of IRA, you’ll have to pay a ten percent penalty.