Bitcoin was developed in 2009, which means it is not even 10 years old yet. The result of this is that financial experts are not making any statements with certainty on it yet because it is impossible to draw real conclusions in such a short period of time. This country is, in fact, one of the only ones in the world that has issued formal guidelines on cryptocurrencies as an investment class. Knowing the IRS’ view on bitcoin roth IRA’s is very important if you were hoping to invest in one.
How the IRS Views Bitcoin Roth IRA’s
The IRS made an official statement in March 2014 outlining that dates are cryptocurrencies as a type of commodity when calculating taxation. This means it processes Bitcoin in the same way as stocks and bonds. The IRS declared that cryptocurrencies are a type of property, which means that investment in them is possible but only when overseen by a custodian so that regulations are complied with.
Historic Lee, custodians would only accept mainstream assets in an IRA. This includes certificates of deposits, mutual funds, bonds, and stocks. Hence, if you do wish to invest in a cryptocurrency, you will have to choose a self-directed option. You do have the option of choosing between a traditional IRA, whereby you pay taxes on the eventual withdrawals, or a Roth IRA, where buy you pay taxes on the initial deposits.
A bitcoin Roth IRA is fully self-directed. This means you decide when to buy, sell, and hold bitcoins. You can also purchase dedicated cryptocurrency fund shares. If you want to invest directly in cryptocurrency, you will effectively become a Forex Trader with the difference being that your currency is not a mainstream one. If, on the other hand, you decide to invest in fund shares, you will delegate forex knowledge to that fund instead. Hence, you need to weigh up whether you have more confidence in your own skills or whether you have more confidence in the skills of a shared fund. Again, because bitcoin is so new, it can be quite difficult to determine whether or not someone truly does have the required experience to properly invest in this currency, but then the same would go for you personally.
Whatever decisions you make, you will have to open a bitcoin wallet. This is not a physical wallet but rather an application on which your digital signature, also known as private keys, are stored. Those keys are required in order for you to move coins between others on the public ledger, which is the blockchain. Those private keys are incredibly valuable because of the anonymity of the blockchain. It is impossible to determine who is accessing the chain so if you share your private key with someone else, for instance through loss or theft, they will be able to remove all your bitcoin and you will never be able to get them back. Do be careful with your private key, therefore!