Introducing Crypto-IRAs


Do you have an IRA with a major brokerage firm or online company?

If so, you probably own stocks, bonds, ETFs, CDs, or mutual funds in the account.

But perhaps you’re looking for more diversification beyond those traditional investments that your custodian offers.

For example, there’s a massive ranch just north of my house. It boasts thousands of acres of unspoiled nature. And over time, the value of undeveloped parcels there have just gone up and up.

So I’ve seriously considered buying one, but most of my investable assets are inside retirement accounts.

The last thing I want to do is withdraw the money and face taxes or penalties.

Enter self-directed IRAs

I briefly mentioned these in a previous article about regular Individual Retirement Accounts.

Self-directed IRAs have the same contribution limits and tax benefits as traditional or Roth IRAs.


The big difference is that you can own a range of non-traditional investments inside self-directed IRAs, including everything from private companies to tax liens.

When it comes to holding real property in a self-directed IRA (anything from raw land to rental units), there are just some catches you need to know about.

Here are the most important ones:

You’ll lose all the regular tax benefits of owning investment real estate like depreciation since the property is held in a tax-deferred account. On top of that, if you borrow money to buy the property, you could trigger unrelated business taxable income.You must also avoid self-dealing, which includes personal use of the property as well as other direct relatives. For example, you can’t purchase a beach house that you want to use for vacations or buy a condo for your child.You are restricted when it comes to managing the property. For example, you can’t do improvements or perform maintenance yourself.You also have to think about required minimum distributions (RMD) when you turn 70陆. It’s pretty hard to liquidate a piece of a duplex.And in the meantime, what if the building needs a major repair? You can’t use outside money to cover the expense. Same goes for property taxes or other expenses. So you’ll have to keep a solid cash reserve on hand inside the account.Likewise, any income the property generates must stay inside the IRA if you want to defer taxes and avoid penalties.


In my personal opinion, raw land or simple rentals would be the most appropriate ways to hold real estate inside a self-directed IRA for some of the reasons cited above.

Of course, there are other possibilities, too even something as progressive as bitcoin.

As you might know, bitcoin is an online currency that was created in 2009. And many people, including Bill Gates, see it as the future of money.

Since the IRS considers bitcoin a capital asset, any money invested in it is subject to capital gains taxes when sold at a profit.

So holding bitcoin in a tax-deferred account, like a self-directed IRA, would be a great move, too.


Full disclosure if you’re new to IRAs: There are things you cannot hold in your self-directed IRA?

Here are some prohibited items:

Life insuranceCollectibles such as artwork, rugs, antiques, or stampsS-corporation sharesMetals – though some kinds of bullion are allowed (including very fine bars of gold and silver as well as some forms of platinum and palladium)Coins with certain exceptions (gold and silver American eagles, for example, are permitted)

How to set up a self-directed IRA

First, find an IRA custodian or administrator who focuses on these types of accounts.

You might want to ask your CPA or financial adviser for recommendations. Another source is the Retirement Industry Trust Association. Click here for a list of its members.

After you open the account, you’ll need to fund it by moving money from an existing IRA or making a new contribution to your self-directed IRA.

Then you’re ready to invest!

A final note of caution: Your custodian or administrator will not perform due diligence on your investments, nor are they responsible for any tax consequences. They only execute your instructions. So do your research before investing!

To a richer life,

Nilus Mattive

Nilus Mattive
Editor, The Rich Life Roadmap

 

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