Cryptocurrency inside retirement accounts offers tax-deferred or tax-free growth—yet it also introduces pitfalls that many investors underestimate. Before you migrate your tokens, it’s vital to understand the tax and compliance terrain.
First, crypto is treated by the IRS as property. That means each time you trade, you must consider cost basis and use fair market value reporting—even inside a retirement account. Failure to properly document valuations can spark audits. Also, if you use noncustodial wallets (i.e. personal key control), you may violate IRA rules, disqualifying the tax shelter.
Second, contribution limits and rules still apply. You can’t exceed IRA limits just because crypto is volatile. And certain types of crypto or NFTs (especially purely collectible ones) may be restricted.
Third is prohibited transactions. An IRA owner cannot benefit personally from assets in the IRA, nor can certain disqualified persons deal with the account. If you lend IRA crypto to yourself or a relative, that’s disallowed. Violating these rules can lead to full taxation and penalties.
With those risks, some investors choose to segregate crypto exposure into a separate IRA, isolating risk and simplifying compliance. Others, if their custodian permits, prefer to combine crypto and more traditional holdings in one account for convenience. The trade-offs are unpacked in “One Account or Two? How a Crypto-Enabled IRA Fits Alongside a Traditional IRA”.
That guide also provides step-by-step strategies for how to migrate crypto into an IRA properly: how to value transfers, document them, and avoid tax mishaps. With that help, you can incorporate digital assets smartly without undermining your retirement structure. For more clarity, consult “One Account or Two? How a Crypto-Enabled IRA Fits Alongside a Traditional IRA”.