Can I fund my IRA with the Crypto I already own? A question I get asked daily.
The thought of funding a new Traditional or Roth IRA with existing Crypto sounds fantastic! To move an existing investment into an account where you can trade as much as you want without triggering taxable events and all your gains are either tax-deferred or tax-free would be a no brainer. However, the IRS is not so keen on this genius idea.
Of course, if you already have Crypto in a qualified IRA plan with a different IRA custodian, then it can easily be transferred. This is known as an ‘In-Kind Transfer,’ which is a standard transaction for custodians. This allows you to transfer the assets as is, instead of liquidating your investment and transferring as USD. The benefits are that you do not have any transaction fees for selling and then rebuying your positions, and you are not risking market fluctuations in the time it takes to complete the transfer process.
As far as NEW contributions to IRAs, funds must come in as USD per IRS rules.
Contribution limits for 2020/2021
- $6,000 if you are under 50 yrs. old
- $7,000 if you are over 50 yrs. old
- *2020 Contributions can be made until 4/15/2021
Roth IRA Contribution Guidelines for 2020
If you are single, you must have a modified adjusted gross income under $139,000 to contribute to a Roth IRA, but contributions are reduced starting at $124,000. If you are married filing jointly, your MAGI must be less than $206,000, with reductions beginning at $196,000.
Roth IRA Contribution Guidelines for 2021
If you are single, you must have a modified adjusted gross income under $140,000 to contribute to a Roth IRA, but contributions are reduced starting at $125,000. If you are married filing jointly, your MAGI must be less than $208,000, with reductions beginning at $198,000.
If you are over the income limits to contribute to a Roth IRA directly, you can still contribute to a Roth IRA through a conversion process known as a Backdoor Roth IRA.
Another option to consider – Tax-loss harvesting
If you purchased your investment at higher prices and liquidate it at a loss, you book what is known as a capital loss that can be applied to any future capital gain. There is no restriction on the time that the loss can be applied. The loss can be pushed forward indefinitely until there is a capital gain to offset. With this strategy, the funds from the liquidation are used to contribute to a new IRA, in USD, from there you buy back into your position(s), and your investment is now growing tax-deferred or tax-free depending on the type of IRA you open.
IRAs can also be funded with any existing IRAs or some employer plans like a 401k, 403b, TSP, or 457.
Disclaimer: I am not a licensed financial or tax advisor — consult with your financial/tax professional to determine what is best for you.