The Right Questions to Ask to Avoid Bitcoin IRA Icebergs

Swan Bitcoin IRA

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The Swan IRA is a new way Americans can save in Bitcoin for their retirement.

Besides fees, what questions should you ask a potential Bitcoin IRA provider and why?

Let’s step through each of these in detail for the Swan IRA.

As a tax-advantaged IRS structure, the Swan IRA has a unique account structure with multiple layers of legal, regulatory, custodial, and institutional-grade security. These layers are unique to Swan and provide a good balance of simplicity, affordability, and regulatory compliance. 

Since launching Swan IRA in Q1 2023, we have onboarded hundreds of happy new clients and received many questions along the way. We realized there are important structural questions to be considered beyond what is communicated on a provider’s website.

What you see on the surface is just one part of an IRA, and these questions help navigate potential icebergs in Bitcoin retirement accounts.  

What is your Account Structure?

Your Bitcoin is stored in a state-chartered trust company subject to state and federal regulation. It exists in your own legally segregated account that is separate and distinct from all other trust company-related assets, including other customers and the custodian itself.

This is foundationally different from an exchange that typically holds customer assets in a group ‘omnibus’ account or even co-mingled with the company’s assets.

Who is the Qualified Custodian?

Every IRA must have a qualified custodian under section 408A of the Internal Revenue Code. 

Swan has partnered with “registered custodians” under the Investment Advisers Act of 1940, as amended, for registered investment advisers regulated by the SEC. 

Your Bitcoin is not and can not be rehypothecated or otherwise transferred.

How is Bitcoin Secured?

Swan’s custodian is a SOC 2 Type 1 and Type 2 certified trust company.  Their storage architecture is supported by MPC technology to provide institutional-grade, distributed-key security protecting your wallet against any single point of failure.

What is the IRA Agreement and Terms?

The Swan IRA has a Roth or Traditional Individual Retirement Custodial Account Agreement with terms similar to other IRA accounts you may have.  

Does Your IRA Need or Have a Legal Officer or Lawyer on ‘Unfettered Command’?  Why or Why Not?  

Following the McNulty 2021 tax case, which established ‘unfettered command’ as the threshold for taxable distribution of physical custody, there are multiple perspectives on what Bitcoin self-custody setups would stand up in court without early withdrawal penalties or taxable distribution events.

Self-custody of Bitcoin in a US retirement account may increase your risk of a tax audit. We have a way for you to self-custody Bitcoin if and when you believe there is, e.g., a near-imminent risk of confiscation, censorship, or increased tax.

Feel free to reach out to the Swan Private team, your accountant, or your attorney to discuss various Self Directed IRA options, including self-custody options. Note that any setup with self-custody, including a 2 of 3 multi-signature setup, could be interpreted by the IRS as ‘unfettered command’ as the beneficiary (or manager) can move the assets without any other party involved, even if you do not initially have legal title and any move is reported to the IRS after the fact.

What are the Fees? 

Setup Fees: The Swan IRA has no setup fee.

Trading Fee: The Swan IRA has flat, 0.99% buy or sell fees (or taken on deposit if a transfer).

Account Fee: The Swan IRA has a $20/month account fee. If the balance of the account in total exceeds $100,000, the account fee is 0.25% annually (billed monthly). Note this is lower than most mutual funds or other structures like GBTC, which is between 2-3% annually.

What are the Contribution and Funding Options?

You can get started with Contributions at Swan with as little as $10.  This is an important distinction vs. some that require significant opening contributions or minimum purchases.

You can make Contributions by ACH or Wire Transfer.  And you can set up a recurring Contribution ‘into your IRA’ via ACH.

Each individual may have unique Contribution limits and should consult with their accountant if needed.

How Do Transfers into the IRA Work? 

If you have assets (e.g., stocks, bonds, investment funds, etc.) in a different IRA account, you can sell those assets to cash, transfer the funds to your Swan IRA, and buy Bitcoin. 

The Swan IRA may have the easiest and fastest transfer process for any Bitcoin IRA. With just a few steps, you can select your current IRA Custodian, enter the transfer amount, sign a Docusign form, and upload an account statement. IRA Transfers can happen in as little as 5 business days.

It’s important to note that a transfer into Swan IRA is not deemed an early distribution and does not trigger any penalties. This is a standard process approved by the IRS. 

We are always looking for ways to improve, so feel free to share your learning or experience with other Bitcoin IRA options and help us build future features!

How Do Rollovers into the IRA Work?

If you have an employer-sponsored retirement plan from a past employer, you can roll cash into your Swan IRA. Your funds stuck in, e.g., a more traditional 401k can be turned into Bitcoin directly. You can do a partial rollover or complete rollover.

With these questions, we trust you will avoid unexpected surprises in Bitcoin retirement accounts!

To create a Swan IRA, sign up below, or contact ira@swan.com today.

Swan is a leading Bitcoin financial services company with more than 120,000 clients and 170 employees, operating globally. Established in 2019, Swan helps individuals and institutions to understand and invest in Bitcoin. The Swan app simplifies Bitcoin purchases with instant and recurring buys. Swan IRA provides a tax-advantaged solution for saving Bitcoin in retirement accounts.

For HNWIs and businesses, Swan Private provides white-glove service for large purchases, treasury solutions, and employee Bitcoin benefits. With Swan Vault, clients can easily custody their own Bitcoin with peace of mind. Financial advisors trust Swan Advisor for client Bitcoin allocations, backed by world-class custody and educational content.

Swan Managed Mining provides clients with fully segregated and dedicated mining operations, catering to their unique requirements, opportunities, and strategic advantages. Swan prides itself on exceptional client service, making Bitcoin accessible to all. For more information, please visit swan.com.

** Swan Roth post-tax. Please speak with your Swan expert for details and consult your CPA.