Help Center: Hold Your Own Keys IRA Trust
Following are answers to some of the most common questions about the Hold Your Own Keys IRA trust.
Please contact Choice by Kingdom Trust if you have additional questions about their HYOK program.
How it Works
The Hold Your Own Keys IRA Trust is a unique structure that allows you to simply and securely hold the keys for digital currency tokens within your tax sheltered IRA.
Two layers are necessary:
- A IRA account on the Choice by Kingdom Trust platform
- A special Trust entity owned by the IRA
The IRA owns the trust, much like a more conventional IRA would own shares of a stock or fund. You act as trustee (a.k.a. “Fund Manager”) and can administer the trust for purposes of holding digital assets.
The purchase of cryptocurrency tokens takes place via the Choice by Kingdom Trust platform. Keys for purchased tokens are then placed into the trust and onto a hardware wallet.
The trust is essentially a very secure personal vault for your IRA digital assets.
Since you hold the keys for your cryptocurrency assets, you have full control and maximum security.
Following is a basic outline of the setup process for the Hold Your Own Keys IRA Trust
- Setup a new IRA on the Choice by Kingdom Trust platform or sign up with Kingdom to add the HYOK Trust to an existing account.
- Work with Kingdom Trust to fund the IRA via new contribution or rollover from another retirement plan.
- Kingdom Trust will provide a registration key you can use to request HYOK Trust formation services from Safeguard Advisors.
- Safeguard Advisors will create and deliver your HYOK trust promptly, usually in 2-3 business days.
- Once your HYOK trust has been completed, you will execute documents and coordinate with Kingdom Trust to have your hardware wallet linked to your trust and verified with a Satoshi test.
- Once the IRA is funded, you can purchase cryptocurrencies on the Choice by Kingdom Trust platform.
- The keys for your IRA-owned tokens are then sent to your trust-held hardware wallet.
Investments in Cryptocurrency
The purchase of cryptocurrency tokens takes place on the Choice by Kingdom Trust platform.
Once your IRA account is setup and holds available cash, you can execute purchase transactions on Choice. Tokens are initially held on the Choice platform in the name of your IRA.
You will then move IRA-owned tokens to the HYOK Trust entity for storage and provide the address for your hardware wallet.
The sale or exchange of cryptocurrency tokens takes place on the Choice by Kingdom Trust platform.
In order to sell or exchange tokens, you must first move them from secure storage within your HYOK trust back into the IRA on the Choice platform.
You can then execute your trade(s) on the Choice platform.
Cash will remain in the IRA account.
If you acquire additional tokens via an exchange or new purchase from cash, those tokens can then be assigned from the IRA into the HYOK Trust. Token keys are sent to your trust’s hardware wallet for secure storage.
Adding & Removing IRA Cash
In order to add cash to your Hold Your Own Keys IRA, you must make a tax year contribution to the IRA or execute a transfer/rollover from another retirement plan.
All cash must be deposited to the IRA account on the Choice by Kingdom Trust platform.
You may never place cash or digital tokens from yourself or another retirement plan directly into the HYOK Trust, as this would break the proper chain of reporting required by IRS rules.
If you have questions about your eligibility to make IRA contributions, please work with your licensed tax counsel.
In order to remove cash from your Hold Your Own Keys IRA, you must take an IRA distribution to yourself or have funds transferred to a compatible retirement plan at another institution.
It may be necessary to sell digital assets to place cash in your IRA account on the Choice by Kingdom Trust platform.
- For a Distribution: contact Kingdom Trust Co. for assistance.
- For a Transfer to another IRA: initiate that process with the receiving firm. That firm will then request funds via transfer from Kingdom Trust Co.
You may never move cash or digital tokens to yourself or another retirement plan directly from the HYOK Trust, as this would break the proper chain of reporting required by IRS rules.
If you have questions about the tax considerations surrounding a distribution from your IRA please contact your licensed tax professional.
In order to maintain the tax-sheltered status of your Hold Your Own Keys IRA, there are certain IRS rules you must adhere to.
Unlike a conventional IRA with a bank or brokerage where you have very little flexibility or control and therefore cannot really break any rules, the added flexibility of the HYOK IRA Trust requires that you understand and operate within the IRS rules.
All activities must be exclusively for the benefit of the IRA. You may not create any transactions or provision of benefit, directly or indirectly, between the IRA and yourself and other disqualified persons. Any such self-dealing can result in a prohibited transaction and the lost of tax-sheltered status for your IRA.
What this basically means is that you need to keep the HYOK IRA Trust very separate and distinct from any personal or family finances.
The only way to add or remove cash from the plan is via the IRA account on the Choice by Kingdom Trust platform. You should never place personal cash or digital tokens inside the HYOK Trust or take tokens out of the HYOK Trust into your own name or to an account with another firm.
Following are those considered Disqualified Persons to an IRA or 401(k) retirement plan. Any transaction, co-mingling of funds, extension of credit, or any other direct or indirect provision of benefit between a plan and a disqualified person can result in a Prohibited Transaction and severe tax consequences.
- The IRA owner
- The IRA owner’s spouse
- Ancestors (Mom, Dad, Grandparents)
- Lineal Descendents (daughters, sons, grandchildren)
- Spouses of Lineal Descendents (son or daughter-in-law)
- Investment advisors
- Fiduciaries – those providing services to the plan
- Any business entity i.e., LLC, Corp, Trust or Partnership in which any of the disqualified persons mentioned above has control. Control is defined as either 50% or greater ownership or an executive day-to-day decision making role.
Reference: IRC 4975
When a transaction occurs between a retirement plan and a Disqualified Person this generates a prohibited transaction. Such prohibited transaction are a violation of IRS rules, and result in severe tax penalties.
A prohibited transaction occurs when there is any direct or indirect:
- Sale or exchange, or leasing, of any property between a plan and a disqualified person;
- Lending of money or other extension of credit between a plan and a disqualified person;
- Furnishing of goods, services, or facilities between a plan and a disqualified person
- Transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a plan;
- Act by a disqualified person who is a fiduciary whereby he deals with the income or assets of a plan in his own interest or for his own account; or
- Receipt of any consideration for his own personal account by any disqualified person who is a fiduciary from any party dealing with the plan in connection with a transaction involving the income or assets of the plan.
Following are tips to properly operate your Hold Your Own Keys IRA Trust and avoid Prohibited Transactions:
- Keep everything associated with this program very separate from your personal finances.
- Never move cash or tokens directly into or out of the HYOK Trust to/from yourself, another retirement plan, or another exchange. The HYOK Trust is owned by the Choice by Kingdom Trust IRA. All movement of assets into the Trust must come from the IRA. All movement of assets out of the Trust must go to the IRA.
- Never pay expenses on behalf of the Trust entity or use personal funds inside the Trust. You should not, for example, purchase a different hardware wallet with personal funds and then use that inside your HYOK Trust. That would be you gifting that hardware wallet to the IRA, which is a prohibited transaction.
- Never mix IRA and personal tokens on your HYOK owned hardware wallet. The wallet should only hold IRA-owned digital assets.
- Never spend Trust held tokens to make a purchase of any kind. The IRA holds tokens as an investment only.
Note that it is OK to pay the administrative costs of the IRA account and initial plan setup with either personal or IRA funds. The operation of and investments made with the IRA plan are where you must avoid the use of personal funds.
The Hold Your Own Keys IRA Trust is generally quite simple to administer. There are a few things you need to be aware of and some best practices to follow that will help keep your IRA in good standing.
Keep basic records. Your Choice by Kingdom Trust IRA statements will reflect any purchases, sales, or exchanges of digital assets. You should retain these records for 7 years as with any other personal financial records for tax purposes. The IRA trust will not file tax returns, but could be audited by the IRS to ensure you are not violating IRA rules and engaging in prohibited transactions. With the records you retain, you simply need to be able to illustrate that all activities of the Trust are kept within the Trust and used exclusively to invest on behalf of your IRA.
Report the Fair Market Value of the HYOK Trust to Kingdom Trust Co. annually. Kingdom needs this value to perform annual reporting for your IRA.
Notify Kingdom Trust Co. if your address or other contact information changes.
Notify Kingdom Trust Co. if you wish to add or change beneficiaries on your IRA account.
In their role as custodian of your IRA, Kingdom Trust Co. must annually report to the IRS using form 5498. The values reported are essentially the same as your year-end account statement, and will include contributions, distributions, rollovers that have taken place during the year as well as the beginning and end-of-year value of the IRA.
Because the Hold Your Own Keys Trust entity owned by the IRA is not publicly listed and valued, Kingdom Trust Co. needs you to report the end-of-year fair market value of the trust.
Kingdom Trust Co. will contact you late in the year with a request for valuation and links to the current-year version of the Fair Market Valuation form. (Typically late November or early December).
The reporting process is simple, and represents a balance sheet for the trust.
List each digital token held by the HYOK trust including the quantity held and total value based on a publicly reported spot price as of December 31st.
There are no tax implications associated with the value reported. This reporting is purely informational.
Here is a sample Fair Market Valuation form.
Making Changes to your Trust
The Hold Your Own Keys Trust is wholly owned by your IRA. The trust itself does not have inheritance beneficiaries.
Managing beneficiaries is done via the IRA account held with Choice by Kingdom Trust, and is the same as managing beneficiaries on any IRA account.
If you wish to add, remove, or otherwise change IRA beneficiary designations, please contact Kingdom Trust Co. for assistance.
As the IRA account holder, you are listed as the active trustee of the Hold Your Own Keys Trust. This allows you to administer the trust and the trust’s holdings in digital currencies.
During the application process, you may have named a successor trustee. This successor trustee is the person who will assume the role of active trustee in the event of your death or incapacitation. As trustee, they could then perform any necessary trust administration to transfer trust ownership to an inheritor’s IRA or terminate the trust and liquidate trust assets back to the IRA account with Choice by Kingdom Trust.
A successor trustee may be a spouse, child, parent, attorney, or other trusted individual. You should be sure anyone you have designated as successor trustee knows of the existence of the trust, where you store your trust-held wallet, and other general information about the program.
If you did not name a successor and wish to, or need to change your successor trustee designation, you may use the following resolution template:
Once completed and signed by you, the resolution must be sent to Kingdom Trust Co. to sign on behalf of your IRA. Contact Kingdom Trust Co. for assistance or email to [email protected]
Closing Your Trust
The Hold Your Own Keys trust may be closed and value returned to the IRA.
Send all trust-held tokens from the trust wallet back to the IRA account on the Choice by Kingdom Trust platform.
Notify Kingdom Trust Co. this is a “full liquidation” of the trust. They will then release the trust from the IRA.
No filings or paperwork are required to terminate the trust entity. It simply ceases to operate once fully liquidated.
The Hold Your Own Keys Trust operates under the trust laws of the state of Wyoming.
Wyoming has decided they want to be a leader in the cryptocurrency space, and in 2019 passed a series of 13 laws that are very favorable to individual investors and financial institutions engaging with digital assets. These Wyoming laws recognize legally protected property rights for owners of all types of digital assets, including cryptocurrencies.
Where you reside is not relevant. Your Hold Your Own Keys can choose to operate under Wyoming law.
No state or federal tax return is required for the Hold Your Own Keys Trust.
The sole grantor (owner) of the trust is your tax-exempt IRA account. The trust is therefore disregarded for tax purposes, and its tax liability flows to the IRA.
The Hold Your Own Keys Trust is not designed as an investment platform, so no, you cannot use the trust for other types of investments.
The Hold Your Own Keys Trust is really just a “personal vault” for digital currencies acquired via the Choice by Kingdom Trust IRA platform.
You can hold other assets within your IRA on the Choice by Kingdom Trust platform, including stocks, ETFs, precious metals, and more.