Quote from: jzcjca00 on January 03, 2014, 02:30:44 PM

Quote from: traiz on January 03, 2014, 06:30:40 AM

The problem is that you can not directly transfer your bitcoin to your IRA.
Your funds have to go to your custodian first, before it can go into your LLC.

Otherwise, you are self-dealing, and will lose the tax advantage of the IRA

Yes, the self-dealing prohibition does increase the effort, but I wouldn't characterize it as "the" problem. It is one of many issues to work around, but the tax advantages make it worth the effort.

The government severely restricts your ability to put money into or take money out of any IRA, and the restrictions on self-dealing are to prevent people from circumventing those rules.

So in order to move bitcoins from personal accounts, you must sell them in your personal accounts, pay tax on the capital gains up to that point, contribute the remaining dollars to your IRA (subject to strict limits), invest that cash into the IRA LLC, then buy bitcoins there. You wind up paying fees and experiencing delays along the way, and the price is likely to rise between the time you sell and when you manage to buy back in. But remember this: once you have accomplished this, as long as you follow the Roth IRA rules, you will never be taxed on future gains!

Imagine you currently have $50,000 invested in mutual funds in a Roth IRA, plus bitcoins in your non-IRA funds which have recently grown to be worth $50,000. Say you decide to move half of those bitcoins into the Roth IRA to avoid taxes on future gains. You open a self-directed Roth IRA and create an IRA LLC, sell $26,000 of the mutual funds, transfer that cash to the new Roth IRA, then to the IRA LLC, then to an exchange, then buy bitcoins. Then you sell that same number of bitcoins in your personal accounts and pay tax on the gains up to that point. You're still paying fees all along the way, but at least by doing it in that order, you won't miss any major bitcoin rallies while waiting for slow fiat money transfers.

Imagine that by the time you reach age 59.5, those bitcoins are worth 2.5 million dollars. You will be able to withdraw them from your Roth IRA completely tax-free, saving almost a million dollars in capital gains taxes!

When you invest in bitcoins outside of a Roth IRA, you take 100% of the risk, but you set yourself up for only receiving a portion of the potential reward because of future capital gains taxes. I say it's worth some effort and expense today to avoid those future taxes.

If you hold for a year and make less than $72,000 joint ($36,000 single) in non-long-term-gain salary then you also pay no capital gains taxes.