Over the past year, NFT's have become a central part of the crypto universe. If you've been investing in NFT's I bet you've asked the question; can I invest in NFT's in my IRA?
You cannot invest in NFT’s in your IRA, according to IRC Section 408(m). NFT's are considered collectibles. Collectibles aren’t eligible for IRA's. Therefore, IRA's can’t be used to invest in NFT's. If IRA funds are used to purchase an NFT, it’s considered a distribution.
In the remainder of this article, I'll dive into the specifics of how the IRA classifies collectibles, how NFT's fit into the IRA's collectibles classification, and what a distribution from your IRA means.
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How Does the IRA Classify Collectibles?
The IRA classifies collectibles as one of the following:
- Any work of art.
- Any rug or antique.
- Any metal or gem.
- Any stamp or coin.
- Any alcoholic beverage.
- Any other tangible personal property specified by the Secretary.
What Makes NFT’s Collectible?
In the case of functional NFT's they'll probably fall under any other tangible personal property.
What is a Distribution from an IRA?
A distribution from an IRA is when funds are withdrawn before reaching a designated age. The age you can start withdrawing from your IRA without fees is 59 ½. The cost of withdrawing from your IRA before 59 ½ is 10% of the amount withdrawn.
If you were to withdraw from your IRA to purchase an NFT, you'd have to pay the price of the NFT, plus gas fees for Ethereum and a 10% IRA withdrawal fee on top.
These excessive fees mean most financial advisors will recommend against withdrawing any funds from your IRA before the age of 59 ½.
If you still want to purchase an NFT after learning you won't be able to use your IRA to invest in NFT's, there is a step-by-step guide in the next section to help you with that.
How Do I Purchase an NFT?
To purchase your first NFT, you'll need to go through a few steps. First, I'll teach you how to open a MetaMask wallet; then, I'll get you to link your MetaMask wallet to an NFT marketplace; finally, you'll be all set for purchasing your first NFT.
How to Open a MetaMask Wallet
Here are the steps to open a MetaMask wallet:
- Install MetaMask. Make your way over to MetaMask's installation page. From the installation page, you can download MetaMask for your android or apple device, or you can download MetaMask's browser extension.
- Open the app or extension. After your download completes, open your app or browser extension.
- Click the ‘Create a Wallet’ button. MetaMask will prompt you to either import your existing wallet or create a new wallet. Since you're new to MetaMask, select the create a new wallet option.
- Read and agree to the disclaimer. You'll be prompted to agree to a short disclaimer. This disclaimer is one of the rare disclaimers I recommend you read on the internet. The disclaimer discloses important security info.
- Create your password. MataMask will ask you to create a password for MetaMask. Since you may be holding a significant amount of capital in your MetaMask wallet, I recommend making your password as secure as possible. Be sure to write your password down in a secure location. You don't want to be the person who loses millions in crypto because you forget your password in 10 years.
- Write down your secret recovery phrase. MetaMask will generate 12 random words which make up your secret recovery phrase. Write your secret recovery phrase down somewhere secure. Refer to MetaMask's guidelines on the secret recovery phrase page for more security info.
If you make it through the above steps, you'll have a ready-to-go MetaMask wallet. You can now connect your MetaMask wallet to an NFT Marketplace.
Connecting MetaMask to an NFT Marketplace
Follow these simple steps to connect MetaMask to an NFT marketplace.
- Select an NFT marketplace. You'll need to decide which NFT marketplace you'd like to participate in. A popular choice amongst NFT enthusiasts is OpenSea. The following steps will be specific to OpenSea. However, most NFT marketplaces are laid out similarly to OpenSea, so you should still be able to follow these steps.
- Click the wallet button. On the far right of the top bar of OpenSea, there’s a little wallet button. Click this button, and select MetaMask from the options in the right side window.
- Connect MetaMask to OpenSea. If you're using the browser extension for MetaMask, after selecting MetaMask, you'll be asked to select an account. Select your MetaMask Ethereum wallet and click next. To complete this step, you may have to deposit some Ethereum into your MetaMask wallet.
- Click Connect. Click the Connect button, and MetaMask will connect your wallet to OpenSea. Now you're all set to browse and purchase NFT's!
The possibilities are endless with MetaMask.
Can I Invest Cryptocurrencies in My IRA?
Therefore, you can invest cryptocurrencies in your IRA just as easily as you can US dollars.
Although you cannot invest in NFT’s in your IRA, you can invest any cryptocurrency you have in your IRA. It may feel like a lot to take in, but understanding how to use NFT’s and how they work will help you in the long run.
NFT's are still in their infancy, so there may be some headaches coming along with investing in them. However, investing in any form is always rewarding in the long run.
I hope this article's information helped alleviate some of the headaches associated with crypto investing.
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I'm Donny. I'm a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.