Crypto in Retirement Accounts

1. Cryptocurrency and Tax Basics

Definition and Treatment of Cryptocurrency

Cryptocurrency, like Bitcoin or Ethereum, is digital money that uses cryptography for security. Unlike traditional currencies issued by governments (fiat currency), cryptocurrencies operate on decentralized networks based on blockchain technology. For tax purposes, in many jurisdictions, cryptocurrencies are treated as property. This classification has significant tax implications:

Tax Implications of Cryptocurrency

When you buy and hold cryptocurrency, you do not incur any immediate tax liability. However, a taxable event occurs when you dispose of your cryptocurrency—be it through selling, trading, or using it for purchases. The gain realized from the sale or trade of cryptocurrency is typically subject to capital gains tax. The rate depends on how long you held the asset: