Bitcoin Roth IRA’s – How Do They Work Exactly?

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Bitcoin has existed for less than a decade and the majority of global regulators have not conclusively decided how they view cryptocurrencies. However, the exception is the US, where official guidelines on how it is used have been issued in March 2014. Since then, it has been possible to open bitcoin Roth IRA’s.

The IRS declared that cryptocurrencies should be seen as commodities in terms of taxation purposes. This means they are the same as bonds and stock. They have also declared that cryptocurrencies are seen as a type of property. What this means is that, in order to add them to a retirement account, then do require a custodian in order to ensure compliance with relevant regulations.

Self Directed Bitcoin Roth IRA’s

In most cases, IRA custodians prefer men stream and standard assets. This includes certificates of deposits, mutual funds, bonds, and stocks. That is not because of an unwillingness to try anything new, but rather because the IRS rules and regulations in terms of more traditional asset classes are properly understood. Hence, if you want to invest in cryptocurrencies as part of your IRA, you will need to open a self-directed account.

As part of a self directed IRA, you can choose to buy and hold bitcoin or you can decide to purchase shares of the dedicated funds in which bitcoin are held. In the first instance, it means you can follow the cryptocurrencies’ price movement in order to buy and sell them, and hopefully earning from bitcoin’s volatility. This does mean that you have to learn how to be a forex or a asset trader.

If you invest, by contrast, in dedicated funds in which bitcoin are held, to decision making process is effectively taken out of your hands. Other investors, who have experience in forex and asset trading, will decide when to buy and when to sell.

It is possible to purchase bitcoin from exchanges. And exchange is a company through which cryptocurrency buyers and sellers are matched together. A number of these exchanges, including Kraken, Coinbase, and Genesis, are registered in this country.

Storing Bitcoin

In order to own bitcoin, you also need to be able to store them. This is done in a bitcoin Wallet, in which a digital signature known as a private key is stored. You need this private key in order to authorize any coin movement on the blockchain that is assigned to you. Anyone who can access your wallet can also access your bitcoin and take them away from you. This is why it is very important that you have a highly secure bitcoin wallet, as all bitcoin transactions are anonymous and non reversible. Different IRA custodians offer different wallets. Some of those are completely decentralized, which means you are in control of the private key. Others are more centralized in nature, which means you need to earn trust your private key to your custodian. Clearly, this is something you need to really think about before agreeing to either.