There is no IRS guidance on cold wallets or USB like key storing devices. We recommend leaving your crypto on the exchange.
Where should I hold my accounts on an exchange?
We recommend IRA LLC or Solo 401(k) account holders open exchange accounts at a place that registers retirement accounts through entity signup, allows for a W9 form to be submitted, and keeps their crypto in the centralized exchange accounts hot or cold storage. See our instructions here for Gemini. We also have instructions for ErisX and River Financial.
If an exchange sends out tax reporting while you are paying no taxes on IRA assets, it can lead to higher audit risks.
What if I don't want to hold it on an exchange?
We recommend leaving the crypto on the exchange for the lack of current tax clarity. Hot wallets or cold wallets have not been declared illegal or prohibited by the IRS, but there are no landmark cases that explore their use in IRAs.
Without regulation, investors could be subject to risk in tax court. Storing a hardware wallet at home may be a prohibited transaction and you risk penalties and fines if it is mishandled. The IRS has frequently prohibited or targeted assets held in the home. The most recent ruling on McNulty vs Commissioner was about precious metals, the term "unfettered command" was used frequently, expressing concerns where an investor has too much control or unfettered access over their IRA assets. This case was about precious metals, not cryptocurrency, but in the absence of regulations, investors would be wise to consider current laws in other assets.
Rocket Dollar employees have no partner, admin, or key sharing authority over your cryptocurrency account with the IRA LLC model. As the manager of the IRA LLC, you get to choose your security method. When choosing your security, always make sure your IRA LLC is titled in as many places as possible, and if possible, your crypto wallet.
We will assist by helping customers solve high-level issues with our partner exchanges, but will never be able to move crypto on your behalf.
What if I would like to know more?
We have had a few advanced crypto webinars that extensively covered currently known regulations and how crypto wallets, hot wallets, and cold wallets could be impacted. We suggest clicking through the youtube tagged chapters for wallets.
Webinar: Crypto for a Self-Directed IRA