What Cryptocurrencies Can I Invest Tax Free And How Is It Done?


Today, we’re piggybacking off our last post on cryptocurrency.  Previously, we covered a little bit about cryptocurrencies:

  • What they are
  • How they’re used
  • Etc.

So, let’s go into how to actually invest in cryptocurrencies using your self-directed IRA, Self-directed 401k, HSA, or ESA. Any of those can be invested into crypto.

So, How do You do it?

The first option we’ve got for you is a platform called ErisX.

They are essentially a brokerage account that you can use through your NuView self-directed IRA to invest in the major cryptocurrencies such as:

  • Bitcoin
  • Ethereum
  • Lightcoin
  • Bitcoin Cash
  • USDC
  • Stablecoin.

And you can invest in these completely tax-free or tax deferred, depending on which type of account you use.

So, if you’ve got questions about what account is right for you, give us a call and we’ll be able to answer those questions for you.

What Does The Process Look Like When Investing In An ErisX Brokerage Account?

First you need to have a NuView self-directed IRA.

This is as easy as giving us a call, filling out an application and we’ll get that account opened up for you within 24 48 hours.

The next step is funding the account. You can do this by either making a yearly contribution, transferring from an existing IRA, HSA or ESA, or rolling over from something like an employer sponsored 401k plan 403B plan. That’s how you get money into your NuView self-directed IRA, HSA, or ESA.

Once the funds are in your NuView account, you would have to go to the ErisX website.

There you can create an ErisX account.

The important part of this step is that you create an IRA type account where you’ll have an option to select your IRA custodian – which would be NuView Trust Company.

Once that account’s created, they will need to verify your information. Have a picture of your ID ready, and other personal identification documents to share with them. (The general stuff needed to open up a brokerage account.)

Once that account is created, you go to your member settings page, download the member application packet, and provide that to the Brokerage Processing dept. at NuView Trust.

Nuview Trust’s Part in the Process

Our processing team will review the paperwork and ask you how much of your IRA funds you’d like to invest in the ErisX brokerage account.  Then, we send those funds to your ErisX account.

Once those funds are in there, you can buy and sell those major cryptocurrencies to your heart’s content.

And just to recap, all of those crypto investments you make, when you buy them, when you sell them later on, when they’ve grown or not (do your due diligence), can occur tax deferred or entirely tax free if it’s done in a Roth IRA.

What if I don’t want to work with ErisX?

Now, outside of using an ErisX brokerage account, if you want to venture off from those major cryptocurrencies, you have a few options.

  1. You can wait for ErisX to add more coins. They’re currently looking to see which coins prove themselves to be most viable for the long-term.
  2. The other option is to establish an LLC that will serve as a conduit for your IRA’s funds. This way, you’re going to be investing your IRA into an LLC that you create with, with its own bank account. And from that point, you have the freedom to choose whichever cryptocurrency brokerage you’d like, as long as they’re IRA friendly. This is important because you need to make sure that they’re not going to be sending you tax forms on a yearly basis.

An IRA is something that’s tax-advantaged, so it’s not going to be treated like a regular person investing in cryptocurrency. You’re not going to be paying capital gains taxes on a yearly basis, which is the beauty of investing using a self-directed IRA.

What You Need to Know

When you create the checkbook control LLC, and you invest your IRA funds into it, you need to know that NuView Trust relinquishes a lot of our custodial responsibilities.

If you have this checkbook control LLC set up, you’ve got almost a hundred percent autonomy in what your investments are and how you’re managing your IRA’s investments through that LLC.

If this is a structure that you want to take advantage of to invest in more exotic the Alt coins, you need to be aware of the do’s and the don’ts of IRA’s investments. And this really comes down to:

  1. Prohibited transactions, and
  2. Disqualified people.

What Are Prohibited Transactions?

Prohibited transactions essentially covers buying, selling, trading, loaning or extending services to anybody that could be deemed as a disqualified party.

It also covers any companies that are associated with any disqualified parties. It’s basically up and down lineage.

Think of parents, grandparents, kids, grandkids, their spouses, as well as you and your spouse. These are people. These are parties. The companies that they’re associated with are also disqualified from doing anything with your IRA.

Now, this doesn’t apply so much to cryptocurrency investments, as it does to something like real estate, where you’re purchasing properties back and forth, and you may be renting to somebody.

However, if you’re still going to have that checkbook control structure, you still need to be aware of these rules. There may come a day in the future where you want to branch out from cryptocurrency.

Maybe you make an incredible return on a Bitcoin investment or an Ethereum investment.  Who’s to say that you may not want to take some of those proceeds and go invest in a piece of real estate. You can do so using that checkbook control LLC setup, but the point is to always cover your bases and know the rules you must operate within.

Otherwise, if you would’ve just bought the real estate directly in your IRA, because at that point we still have our custodial oversight, we can raise the red flag if we see that you might be doing something prohibited.

But, if the checkbook control structure is something you set up, we don’t see a lot of what’s going on behind the scenes.

We only ask you for a fair market value a couple of times a year so we can still report to the IRS the value of the IRAs we hold custody to. But what’s taking place under that umbrella, we’re not privy to that.  That’s your responsibility.

With Great Power Comes Great Responsibility.

You just need to know what the rules are, the do’s and don’ts, etc.

Don’t be paying yourself as a manager. That’s definitely disqualified.

If you want to add funds to the LLC, and then add to the cryptocurrency brokerage account, the flow of money still has to come through NuView first.

So, in the case of a yearly contribution, you couldn’t just deposit that directly into the LLC bank account.

You would have to make a contribution to NuView first. Then, you would do a purchase authorization, giving us written authorization to send those added funds over to your LLC bank account, and from the LLCs bank account into the cryptocurrency brokerage.

So, this process is a roundabout way of doing it. But, what you get is the freedom to choose which cryptocurrency brokerage you’d like.

And this is important when you’re dealing with all the exotic alt coins because some platforms have different offerings than others.

There may be some commonalities between the two different accounts, but if you’re looking for something very specific, there could be one brokerage that has it while a lot of others don’t.

If you have any questions about the how-tos of investing in cryptocurrency, contact us at NuView.

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