Digital Currency is an alternative investment that many consider as a hedge against inflation, much like precious metals, and for its diversification from the conventional market. Self-Directed IRA (SDIRA) custodians, like Preferred Trust Company, are licensed to custody the digital asset. For more information, review IRS Notice 2014-21 which describes how existing general tax principles apply to transactions using digital currency. The notice provides guidance in the form of answers to frequently asked questions.


These are important factors to consider when investing in digital currency with an IRA.

  • You cannot use the cryptocurrency to purchase goods or services.
  • The pros and cons of investing through an IRA LLC with checkbook control.
  • The security of your digital currency assets in cold storage vs hot storage.

Preferred Trust Company CEO, Carrie Cook, reveals in her most recent whitepaper, “The Good, the Bad, and the Ugly of Digital Currency Investing”. This is a must read for both new and veteran cryptocurrency investors.



Although the digital currency exchange platforms have implemented a high degree of security, malicious attacks still occur. You cannot ignore the headlines as digital currency continues to be a popular target for organized cyber criminals, whether they are stealing it outright or demanding it as an extortion payment in ransomware attacks.

Ninety percent of custodians are holding custody of digital currency on an exchange platform, typically in non-segregated hot storage wallets. Not Preferred Trust Company. We stand by our policy for a more secure environment with segregated cold storage. Call us crazy, but our clients believe that the safety of their digital currency is more important than the fancy apps and unsegregated custody approach to their hard earned money.

Hover over the images below to learn more:

Segregated Cold Storage

Non-Segregated Hot Storage


When it comes to investing in digital currency through an IRA, clients have two options to choose from: 1) Working with a Self-Directed IRA custodian to facilitate the investment; or 2) You can take the more sophisticated approach with an IRA LLC with checkbook control.

Select the tabs below to learn more about your investment options:

Step 1: Complete an application to open a Self-Directed IRA account with Preferred Trust Company.

Step 2: Once the application is completed, you are either making a contribution, rolling over from a previous employers 401k, or transferring funds from another retirement account to fund your Self-Directed IRA. Don’t worry, we will help you through this process!

Step 3: Complete the Digital Currency Investment Purchase Authorization and Direction Form.

Step 4: You will receive a wallet address so that you can verify your digital currency investment.

Step 5: Monitor your account through your online account portal so that you can buy and sell at the opportune time.

Step 1: If you are not currently a Preferred Trust Company client, you need to open a Self-Directed IRA account.

Step 2: Once the application is completed, you are either making a contribution, rolling over from a previous employers 401k, or transferring funds from another retirement account to fund your Self-Directed IRA. Don’t worry, we will help you through this process!

Step 3: The IRA LLC will need to be structured such that the IRA is the owner of the LLC. This is a newly formed LLC with an associated bank account. This will give you, the IRA owner, management and control of the LLC. Preferred Trust Company provides this service to establish the LLC in the state of Nevada (learn more).

Step 4: Once your SD-IRA and LLC are set-up, you will direct Preferred Trust Company to transfer the qualified funds in your SD-IRA to the checking account of the LLC, establishing the ownership of the LLC by the SD-IRA.

Step 5: You can now engage a cryptocurrency exchange to buy, sell and store digital currency on your own terms.

Additional Information

When you hold digital currency in a Self-Directed IRA, there are 3 components to maintaining a compliant account with Preferred Trust Company.

Minimum Account Balance

It is the policy of Preferred Trust Company that all accounts maintain a minimum cash balance of $500.00. The minimum cash balance cannot be used to pay fees. The minimum account balance can only be obtained by transferring funds from another Qualified Retirement Account, making a contribution to the account, or selling digital currency to ensure your account complies with the policy.

Annual Depository Fee

Your digital currency is stored on a ledger device in a secure, undisclosed location. The Annual Depository Fee for the storage of your digital currency is $300. This fee is considered an expense related to the investment and must be paid directly from your IRA. The Annual Depository Fee can only be obtained by transferring funds from another Qualified Retirement Account, making a contribution to the account, or selling digital currency to ensure your account complies with the policy.

Annual IRA Account Administration Fee

This fee is due in the month prior to the anniversary date you established your IRA account with Preferred Trust Company. The Annual IRA Account Administration Fee can be paid by credit card, check or wire. If you elect to send a wire, you must also include an additional $30.00 Wire Fee to the amount you are wiring.

Types of Digital Currency

The list below are the digital currencies that Preferred Trust Company will custody on behalf of your Self Directed-IRA.

    • Bitcoin
    • Bitcoin Cash
    • Litecoin
    • Ethereum
    • Ethereum Classic
    • Ripple
    • Stellar
    • ZCash

Digital Currency Investment Process

Preferred Trust Company works with Genesis Global Trading Inc. Genesis is one of the few exchange platforms that is licensed and regulated by the U.S. federal government.

Investment process with Genesis:
  1. Client completes the Digital Currency Investment Purchase Authorization and Direction form.
  2. The purchase will be completed within one (1) business day from receipt of the executed form.
  3. Preferred Trust Company assigns a unique wallet address to the IRA for the purchase of the specific type of digital currency, i.e., Bitcoin. The wallet address is provided to the trading platform.
  4. Preferred Trust Company sends funds from the IRA to the trading platform and the trading platform sends the digital currency to the specified wallet.
  5. Preferred Trust Company verifies the wallet address received the digital currency and a confirmation email is sent to the client.

IRA Online Account Portal - Digital Currency Values

Now let’s say you want to see what the value of the digital currency is.

  • You can view your digital currency assets with pricing through the Preferred Trust Company online account portal. The value of the digital assets are updated each evening, excluding weekends.
  • Should you want to view your digital currency on the blockchain, Preferred Trust Company provides you with your unique wallet address upon the completion of your purchase. Your wallet is viewable through any blockchain explorer.

Below is an example of the information you will see through the online account portal.

IRA LLC - Pros and Cons

IRA LLC’s are a great option for investors that are confident in their ability to manage their retirement account with a thorough knowledge of SD-IRA prohibited transactions and, in general, IRS regulations regarding IRA accounts. There are advantages and pitfalls to this level of responsibility that individuals should seriously consider before moving forward.

  • Increased speed of investment: Complete signing authority and direct access to qualified funds means that the IRA owner can move in-and-out of investments more quickly. For example, this can be pivotal for investments in digital currency, where the price of the asset is dependent on the ability to purchase and sell at a certain time.
  • Personal asset protection: LLCs in general provide personal asset protection by keeping your retirement assets and your personal finances separate.
  • Fewer fees: Since the IRA LLC investment activities are independent of the custodian, investment transaction fees do not apply. However, the custodian is still responsible for administrative activities, such as reporting to the IRS, processing contributions and distributions, etc., which means that administrative fees will still apply.
  • Invest in both alternative and publicly traded assets: An IRA LLC gives you the flexibility to invest in alternative assets and publicly traded assets without having to rollover or transfer qualified funds between two different accounts.
  • Formation and ongoing expenses of having an LLC.
  • Increased responsibility: This autonomy places greater responsibility on the IRA owner to ensure that the IRA LLC’s activities remain compliant with IRS rules and regulations. Familiarizing yourself with the IRS prohibited investments and transactions will be pivotal to ensuring that your account does not lose its qualified tax protected IRA status.
  • Sole protector: You are your own last line of defense, which means that proper research and due diligence will be essential for protecting your retirement account from fraud. This includes protecting yourself from fraudulent digital currency exchange platforms and storage options.

Tax Consequences in an IRA

In 2019, the IRS issued IRS Rev. Rule 2019-24 to establish tax implications for when digital currency investors participate in an “airdrop” of new digital currency derived from a “hard fork.” Below is a direct excerpt from the ruling:

(1) A taxpayer does not have gross income under § 61 as a result of a hard fork of cryptocurrency the taxpayer owns if the taxpayer does not receive units of a new cryptocurrency.

(2) A taxpayer has gross income, ordinary in character, under § 61 as a result of an airdrop of a new digital currency following a hard fork if the taxpayer receives units of new digital currency.

If you participate in digital currency investments with a Self-Directed IRA, you may be thinking that your tax advantaged account will shelter your investment returns from any tax consequences. Unfortunately, this is not an insulated event for an IRA account.

To learn more about this type of transaction and your options, read our blog.

Required Minimum Distribution (RMD) with Digital Currency

At some point in your lifetime, you will be required to distribute the assets in your retirement account if you have a Traditional IRA. Required Minimum Distributions (RMDs) generally are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that they reach age 72.

So what happens if you’ve invested 100% of your retirement dollars in digital currency? You have two options:

Option 1:

You can take an in-kind distribution of the digital currency, but this will cost you. You will incur processing fees assessed by the IRA custodian. If you’ve drained the cash in your IRA account you will not have the funds necessary to pay the costs associated with selling the investment, which costs are required by the IRS to come from the IRA. If you are under the age of 72 then you could contribute to the IRA to proceed with an in-kind distribution. If you are over the age of 72, the second option is your only option.

Option 2:

Option two involves selling a portion of your digital currency. This is probably the worst-case scenario since you may not be able to recoup the amount you paid for the digital currency – especially if you purchased them within a few years of needing to process an RMD. The saying continues to ring true today, do not put all your eggs in one basket. Having some liquidity in your IRA account when you have non-income generating investments can make a significant difference between your ability to build your retirement, taking a loss, or potentially disqualifying your IRA account.

As a self-directed custodian, Preferred Trust Company does not endorse, offer, or sell any investments. Preferred Trust Company does not provide any tax or legal advice. Resources are provided for general information. We strongly recommend that the investor seek professional advice from the appropriate legal, accounting, and/or tax professionals prior to making any investment decisions. Selection of the investments and the performance of those investments are the sole responsibility of the investor and not Preferred Trust Company.