The IRS released notice 2014-21 on March 25, 2014 where they state they don’t exactly treat cryptocurrencies like currency, but rather more like property (real estate). This sparked a long debate between the Securities and Exchange Commission (SEC) and the Commodities & Futures Trading Commission (CFTC) on whose domain crypto assets fall.
In notice 2014-21, the IRS states, “virtual currency is treated as property for U.S. federal tax purposes” which also means any profits made on selling those currencies result in “general tax principles that apply to property transactions apply to transactions using virtual currency”.
To put it plainly, the IRS will charge capital gains taxes on any profits made by selling crypto assets, either short-term capital gains (treated as ordinary income) or long-term capital gains (generally 15-20% if the asset is held longer than twelve months).
IRS Perspective: Crypto assets in your IRA
The IRS doesn’t tell you what you (or your retirement account) can invest in. Instead, the IRS prefers to tell you what is prohibited.
Both section 408 and section 4975 of the Internal Revenue Code (IRC) detail what types of investments and what type of persons are prohibited from transacting with the retirement account.
Prohibited Transaction rules are designed so that neither the participant nor the retirement account can benefit from the other’s involvement. In other words, you can’t have a sweetheart deal for yourself or the retirement account. The Department of Labor and IRS have decided the easiest way to keep that from happening is to prohibit certain “disqualified persons” from transacting with the retirement account.
A disqualified person is defined in IRC Section 4975(e)2 and generally includes:
- The IRA Accountholder (you)
- Your spouse
- Your parents
- Your children
- Business or entity you (or your spouse) own or have a controlling interest
- Business or entity your parents own or have a controlling interest
- Business or entity your children own or have a controlling interest
Since the IRS considers crypto assets to be a capital asset, similar to real estate or stocks/bonds, the retirement account is allowed to buy, sell and hold crypto!
Steps to Using the Evolution IRA
Typically crypto exchanges are highly regulated and it can be difficult and time consuming to get an exchange account open. With the crypto IRA by Nabers Group, purchasing and storing crypto assets in your traditional or Roth IRA is accomplished in 3 simple steps:
- Open an IRA
- After we gather some basic information about you, the Evolution IRA team will prepare all the IRA paperwork, including your application, beneficiary designation election, transfer authorization, etc.
- We’ve partnered with Kingdom Trust Company to be your IRA custodian. Kingdom Trust is the leader in digital asset holding in an IRA and has over $12 billion in assets under their custodianship
- Fund your IRA via rollovers or contributions
- We’ll help you rollover funds into the new self-directed IRA so you get the money into your control faster
- Buy crypto
- The Evolution IRA team will facilitate the entire process with our trading desk. After our expert team helps you put together your order allocation, you’ll jump on a quick 10-15 min phone call to verbally verify your order and the crypto will be placed into your IRA.