With a potential for tremendous appreciation, it can make sense to invest in cryptocurrency through an IRA so that future gains will escape taxation.
However, holding cryptocurrency in a retirement account has traditionally been difficult. When you hold funds in an IRA (or Roth IRA), the Internal Revenue Code prohibits “direct holdings”. All retirement funds must instead be held by a custodian, which must be a bank or a “nonbank custodian” approved by the IRS under Treas. Reg. 1.408-2(e).
The first obstacle many investors hit is that most custodians will not permit cryptocurrency within retirement accounts. There are a few “Bitcoin (available on Coinbase) IRA” custodians out there which will allow investments in Bitcoin (available on Coinbase), however, they typically hold the private keys and charge large fees for doing so. Often these custodians operate a multi-sig wallet for the funds, meaning they don’t have complete control, but even then the fees charged make this option unrealistic for many investors.
The good news is that there is a way to hold cryptocurrency directly that eliminates almost all of these middleman fees. You can even be in control of your private keys. This type of retirement account is a “checkbook IRA”. With a checkbook IRA, the custodian maintaining your IRA holds only one asset: an LLC owned solely by the IRA.
The IRA is 100% owner of this LLC, however, the manager of the LLC is you. As manager, you handle the day to day affairs and investing of the LLC. When fiat currency is invested into the IRA, the IRA immediately turns around and contributes it to its wholly owned LLC. 
From there, as manager, you control how those funds are invested. This includes the ability to invest in cryptocurrency. No approval from the custodian is required, as the investment is legally held by the LLC, not the IRA. The IRS does issue some “prohibited transaction rules”. These rules outright prohibit IRAs (and LLCs owned by IRAs) from investing in certain assets.
The good news is that cryptocurrency is not one of those asset classes.  There are additional “prohibited transaction” rules that may apply to your situation, however, so be sure to consult with an expert to avoid violating them on accident.
Perhaps the most important step in the process is to find an attorney with expertise in “checkbook IRAs”. An experienced attorney will not only set up the IRA and LLC for you, but also draft the operating agreement needed for this setup and provide assistance with opening the LLC’s checking account (which will be important, as described later). It’s very important to note that under IRS rules, all contributions to an IRA must be made in US Dollars, not cryptocurrency.
After receiving the US Dollars, the IRA custodian then transfers those funds into the LLC’s checking account. From the LLC’s checking account, the US Dollars can be used to purchase cryptocurrency. An obstacle here is purchasing cryptocurrency in the name of the LLC, rather than in your personal name.
One option is to purchase directly from a private party. There are numerous websites that connect private party sellers to buyers. Many such sites require you to add “real name” to your Buyer profile. To be extra careful with regard to the prohibited transaction rules, I suggest listing your name like this “Joe Smith, as Manager of ABC LLC”. It is also important that the LLC not purchase any cryptocurrency from a party which is “related” to you, as this is a prohibited transaction under IRS rules.
The other mETHod is to use one of the cryptocurrency exchanges which allow opening accounts in the name of an LLC rather than in the name of an individual. Not all exchanges will allow this. Be extra sure that the account is in the LLC’s name (not yours) and that the linked bank account is an account owned by the LLC (not you).
You’ll also need a wallet for holding your cryptocurrency. If your cryptocurrency holdings are small, you may choose to leave them in your exchange trading account. But if they’re larger, you may wish to transfer them to a more secure external wallet. The LLC must own the wallet, not you personally. This is because any exchange of assets between you and your IRA (or your IRA LLC) is a “prohibited transaction” under IRS rules.
 The best solution is probably cold storage, which is easily “owned” by the LLC and is also very secure. A hardware wallet, or even a paper wallet can fulfill this function. Important: This article is provided is for educational purposes only. Readers should consult with a tax professional and are solely responsible for their own due diligence not only with regard to tax issues, but also in making investment decisions and choosing a custodian and exchange.
 Disclaimer: This article is provided is for educational purposes only. Readers should consult with a tax professional and are solely responsible for their own due diligence not only with regard to tax issues, but also in making investment decisions and choosing a custodian and exchange.
About the author Jeff Vandrew Jr is the founder of  Vandrew LLC, a law firm that assists clients with cryptocurrency and self-directed IRA issues.