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What You Should Know About Holding Cryptocurrency in a Self Directed IRA

Hi. I’m Terry White, CEO of Sunwest Trust.

If you’ve been following this channel, Sunwest IRA, you know that we provide these videos once a week to give you educational information about self- directed IRAs. You probably also know that Sunwest and I are involved with an organization called RITA, which stands for the Retirement Industry Trust Association.

RITA Conference For The IRA Industry

RITA meets two times a year. In October, we meet in different places around the country. Every March we meet in Washington DC and get an opportunity to talk to people in DC about the industry as a whole, where it might be going, and how they’re going to look at individual retirement accounts in the next few years.

Our most recent meeting was in October, in Orange County. I wanted to take some time to talk to you about some of the major topics and issues affecting the self-directed IRA industry that we discussed there.

One big topic that comes up every year is cryptocurrencies. We talked a lot about cryptocurrencies. Some people asked whether it was an acceptable investment for a retirement account. There are those – and I’m not passing judgment here – who think it’s a very speculative investment. Cryptocurrencies might not be here for the long term.

It reminded of a few years ago when crowdfunding was the big thing. It was going to take over the entire industry! Well, crowdfunding is still here, but in my view, it hasn’t become as big as its boosters thought it would be.

Cryptocurrency may be in the same boat. It’s definitely possible to put it in your self-directed IRA because it’s not life insurance or a collectible. But whether it’s something you should invest in is up to you to decide with your financial advisors and the people who help you decide what to do with your retirement account.

Cryptocurrency Self Directed IRA Custodian

The big concern about cryptocurrencies is how a self-directed IRA custodian can hold the actual cryptocurrency. There were some discussions about different ways to do just that.

At the moment, Sunwest Trust is not comfortable holding cryptocurrency directly inside an IRA.

We also discussed another way to hold cryptocurrency, which is through a single- member LLC. I’ll get this topic in a second. In that instance, you would form an LLC, and your IRA would own all the membership units of that LLC. The LLC (with you or someone else as the manager) would open an account with one of the crypto exchanges and actually do the purchasing and holding of the cryptocurrencies in whatever way you thought was safest.

There was also some talk of creating some kind of omnibus account where all the cryptocurrencies could be held by a custodian. Each individual could have some kind of subaccount. I don’t think anything like this is available yet, but we discussed the concept.

So explored several ways to hold cryptocurrencies. Contact your custodian of choice to figure out how they’d handle it.

Single Member IRA LLC’s

Another topic that came up a lot at RITA was single-member LLCs. From what I can gather from the Toronto Revenue Service’s point of view, there are two main concerns associated with these.  

  1. Number one is that people might inadvertently commit a prohibited transaction within the LLC that would affect the IRA, without even realizing they’re doing it.
  2. They just might not know the rules. Or they could do something within the LLC that would create a prohibited transaction inside the IRA.

I hope the other concern is less likely to happen. That is, someone might form an LLC specifically for the purpose of doing a prohibited transaction and think the LLC structure protects them or the IRA from the prohibited transaction rules. Wrong! All of the prohibited transaction rules that apply to an IRA apply to the LLC owned by the IRA. You can’t get away with a prohibited transaction simply because it’s done within an LLC owned by an IRA.

That’s a concern of ours, too, simply because people may not understand all the rules applicable to an IRA. As a result, in the single-member LLC, they’re managing without direct custodial oversight, they may commit a prohibited transaction.

I’ve told you in several videos that it’s not the custodian’s responsibility to prevent prohibited transactions. If we see something that looks like one, we’ll notify you. If it turns out to be a prohibited transaction, we’re required to distribute the account and code it as a prohibited transaction. But that doesn’t mean you can depend on the custodian, in any instance – whether it’s Sunwest or another custodian – to know that a prohibited transaction took place, either when you’re doing it or even after it’s been done. Keep that in mind.

Cybersecurity Fraud

The last thing we discussed at the RITA Conference was cybersecurity fraud. It’s important for you to know that there are people out there who are continually trying to steal your retirement money. They might try to talk you into making an investment that may not be a real investment – like a Ponzi scheme, or possibly an out-and-out fraud. Those scams are out there.

A lot of bad guys who are not legitimate account owners are trying to figure out how to get custodians to wire money to them. The scams are endless, and some of them are very sophisticated and believable. Beware of them!

At Sunwest Trust, we meet weekly to discuss these kinds of things. We talk about what we see in other financial industries, and what we hear in our industry about how to avoid fraud. We identify red flags and the best ways for people can get information from us if they want to do a wire transfer or some other transaction.

Just so you know, Sunwest Trust never accepts wire instructions via email. We’ve seen too many hacked email accounts. We only accept wire instructions by mail or fax. We also have a rigorous security check – a callback and verification process that we go through before we make any wire transfer.

If you’re a Sunwest Trust customer, please bear with us as we go through these processes with you. It might seem like a hassle, but we’re just trying to ensure that what we’re doing on your behalf is something you requested and that the money is going to the right account and being handled the way you expected and wanted it to be. Please cooperate with us when our staff calls you and asks you security questions to verify your identity and account.

So those are three of the topics we explored at the RITA conference. But we also talked about a lot of other things, and I’ll be sharing them with you in the next few videos.

If you’re interested in this information, subscribe to this channel! We put out these videos once a week. But remember – they are strictly for educational purposes only. They’re not meant to take the place of competent, legal or tax or investment advice. You should build your own team of people who can help you make the right decisions about your retirement account.

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.