Bitcoin Mining in a Self-Directed IRA

Brendan Walsh brings in a Bitcoin expert Ben Epling from River Financial to talk about Bitcoin mining in an IRA.

Brendan Walsh leads the partnerships team at Rocket Dollar. He works closely with crypto partners, crypto exchanges, and crypto investors who have questions about working or investing on the Rocket Dollar platform.

Ben Epling is a relationship manager at River - a Bitcoin-only financial services firm. He focuses primarily on helping individuals and institutions securely purchase and store Bitcoin, and invest in Bitcoin mining.

How do you buy Bitcoin or Mining machines in a Rocket Dollar IRA account?

Instead of one centralized exchange, we work with our Checkbook IRA product. With the Checkbook IRA, you have an IRA, a Colorado LLC, and a fiat bank account.

You can take this LLC and apply it to any centralized crypto exchange. As the LLC manager, you are in full control of your cryptocurrency. We work with a few recommended exchanges that know how to integrate our accounts. The exchange must recognize the LLC as the owner of all accounts and you as the manager of the LLC.

We have instructions for working with River Financial here. You can work with River Financial's Team, purchase and sell Bitcoin, and purchase Bitcoin mining machines.

What are the advantages of using the Checkbook IRA model?

• As the LLC manager of your cryptocurrency, you can secure your cryptocurrency as you wish. Your LLC can also own Bitcoin mining machines as an asset.
• Since Rocket Dollar is a flat fee provider, starting at $360 and then just $15 a month, we do not add on any trade fees when you transact or move your cryptocurrency. All fees are set by the crypto exchange or crypto protocol the investor decides to use— such as River—which sometimes takes a trade fee or blockchain-related transaction fee.
• No IRA Custodian Counterparty risk - Rocket Dollar is SOC-2 certified but does not hold any cryptocurrency keys for you. As the LLC manager, you can decide how to secure your cryptocurrency.

How do I get started?

1. Sign up on app.rocketdollar.com/signup
2. Fund your account with a transfer or contribution
3. Apply to River Financial as the LLC manger
4. Purchase Bitcoin or a Bitcoin mining device from River's mining program. Your LLC now owns the asset(s)
5. If you wish to use a Hardware wallet Device, you can do so with with your IRA LLC or Solo 401(k) partner bank debit card.
6. Fund the River Financial account from our partner bank, and withdraw to the private wallet as needed. 

Are there any risks to Bitcoin Mining in an IRA?

First, you must avoid any prohibited transaction rules that govern all IRAs, especially Self-Dealing. Bitcoin Mining machines kept at home will likely trigger a prohibited transaction. You cannot plug your IRA's mining machine into any power outlet that you pay the power bill, and the mere act of setting up or maintaining a machine during routine maintenance can be seen as sweat equity, or self-dealing in the IRS code, as you are providing your retirement investment with free labor. A prohibited transaction can distribute your entire IRA and force you to pay taxes and penalties. Using a hosted mining service provider to manage your machine's power and maintenance requirements may help keep you at arm’s length from transactions of your retirement assets. While prohibited transaction rules for popular assets like real estate and precious metals are well established, cryptocurrency specifics have not been tested in any landmark tax court cases.

For the Bitcoin itself, your retirement accounts need all new wallets, seed phrases, and even possibly a new crypto hardware device to keep your assets cleanly separated. You cannot send retirement crypto to your personal wallets or a spouse's crypto wallet. Commingling assets is an immediate prohibited transaction.

Has the IRS ever released guidance on Bitcoin mining in an IRA?

No, there isn't IRS guidance. You have to look at the debate between tax experts and legal experts. Most of the debate revolves around a few key points

• Is your Bitcoin mining activity inside your IRA being taxed as a hobbyist or as a business?
• Will your IRA be subject to UBIT tax, or unrealized business income tax. If the IRS sees your mining activity as a business, you could be at risk of Unrealized business income tax.

If you wish to consult a CPA, it would be wise to see one with a speciality in Self-Directed IRAs and/or cryptocurrency. UBIT is generally thought of as a Self-Directed IRA specialist topic. Rocket Dollar has a list of independent CPAs we can introduce to you if you have questions for a tax professional.

We have over 200 articles in our knowledge base on cryptocurrency, real estate investing, venture capital, and more, all inside of an IRA. You can contact our team at info@rocketdollar.com or call 855-762-5383