Beware of "IRS Approved" Virtual Currency IRAs

06/13/2018 8:00 am EST

Focus: CRYPTOCURRENCY

Dan Rutherford

Deputy Director, Office of Customer Education and Outreach, U.S. Commodity Futures Trading Commission

 

The U.S. Commodity Futures Trading Commission (CFTC) is warning investors to be cautious of sales pitches touting “IRS approved” or “IRA approved” virtual currency retirement accounts.

Virtual currency prices can have wild price swings. This volatility is not reduced or limited just because the virtual currencies are held in an individual retirement account, or IRA. Some businesses may attempt to lure customers into buying highly volatile cryptocurrencies using false claims or by painting virtual currencies as less risky because they can be used for retirement saving.

It’s important to know that the IRS does not approve or review investments for IRAs. As such, advertisements or solicitations that use this kind of deceptive language should be viewed with caution.

Federal agencies, including the CFTC and IRS, do not:

  • Endorse any investment
  • Advise people on how to invest their money
  • Issue statements that an investment in an IRA is protected because a trustee or custodian has been approved by the IRS, or is regulated by federal or state agencies.

IRAs are retirement accounts that provide investors with certain tax incentives for retirement savings. Earnings can grow tax-deferred or tax-free. All IRAs are held for investors by custodians or trustees, most of which are banks or broker-dealers that limit investment options to firm approved stocks, bonds, mutual funds, or certificates of deposit.

Self-directed IRAs are held by trustees or custodians that permit investments in a broad array of assets, from virtual currencies, gold and other precious metals to real estate, promissory notes, or private placement securities. Custodians and trustees of self-directed IRAs may have limited duties to investors and generally will not evaluate the quality or legitimacy of an investment or its promoters.

Risks for self-directed IRAs:

  • Virtual currencies are relatively unproven and may not perform as expected.
  • Cash markets for virtual currencies are largely unregulated.
  • Cash market platforms may lack critical system safeguards or customer protections.
  • Some platforms may sell from their own accounting putting customers at a disadvantage.
  • Digital wallets operated by custodians could be hacked.
  • If digital assets are stolen or lost, there may be no way to retrieve them.
  • Substantial volatility and price swings.
  • Market manipulation.

Learn more today.

Suspect fraud?

If you believe you may have been the victim of fraud, or to report suspicious activity, contact us at 866.366.2382 or visit SmartCheck.gov/submitatip.

This article was prepared by the Commodity Futures Trading Commission’s Office of Customer Education and Outreach. The article is provided for general informational purposes only and does not provide legal or investment advice to any individual or entity. Please consult with your own legal adviser before taking any action based on this information.

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