Can I hold private keys for crypto assets in a self-directed IRA without IRS penalties?

But wouldn't a "checkbook IRA LLC" structure potentially solve this issue? If the LLC owned by my IRA holds the keys rather than me personally, isn't that different from the McNulty situation?

The checkbook IRA LLC approach could potentially provide a layer of separation, but it still carries risks. When you form an LLC owned by your IRA and you're the manager of that LLC, you're not acting in your personal capacity but as a fiduciary of the IRA-owned entity. If the LLC holds the private keys, it might be considered different from the McNulty situation, but this is still untested territory with the IRS. The key distinction would be that the assets remain owned by the IRA through its ownership of the LLC, and you're not taking personal possession of IRA assets. However, the IRS could potentially argue that having direct control over the keys through the LLC management role is effectively the same as taking possession.

How exactly does their system handle the specific crypto custody question? Does it just give general advice or actually review your specific IRA documents?

I'm skeptical about any service claiming to have definitive answers here when the IRS hasn't issued clear guidance. What makes them more authoritative than my CPA who says this whole area is still a regulatory gray zone?

Their system actually reviews your specific documentation and provides personalized analysis. You upload your IRA custodial agreement, any LLC operating agreements, and details about your proposed crypto custody arrangement. Their AI analyzes all this against relevant tax court cases and IRS guidance to identify specific compliance issues. What impressed me is that they don't just give general warnings - they highlight specific clauses in your documents that could be problematic and suggest alternative language. For the McNulty comparison specifically, they break down the factual differences between physical asset possession and crypto key management from a tax law perspective.

How does this Claimyr thing actually work? I've been trying to get through to the IRS about my SDIRA for months without success.

Sorry, but I find it hard to believe any service can magically get you through to the IRS faster. The wait times are built into their understaffed system. And even if you get through, most agents won't give definitive guidance on something as complex as crypto SDIRAs.

It works by using their priority line system that's typically only available to tax professionals. They essentially connect you through a professional priority channel so you don't have to wait in the general queue. It's completely legitimate - they just leverage existing IRS procedures for professional access. When you get connected, you're speaking with actual IRS agents, just through a faster channel. You're right that not every agent understands crypto SDIRAs in depth, but even getting basic questions answered officially can provide documentation that helps protect you. In my case, I was able to request a transfer to a specialized agent who had handled digital asset cases before.

We're doing exactly this! Our SDIRA is set up through a custodian that specializes in crypto. They maintain one key in a multi-sig arrangement, while our IRA-owned LLC controls the second key. All transactions require both signatures, which seems to satisfy the custodial requirements while preventing either party from acting alone. Make sure your operating agreement and custodial agreement explicitly outline this arrangement. Our lawyer added specific language acknowledging that the blockchain assets remain property of the IRA despite the key management arrangement.

That's exactly what I was hoping to hear! Do you have any recommendations for custodians that are comfortable with this kind of multi-sig arrangement? Most of the ones I've talked to seem confused when I bring it up. Also, did you have to create any special documentation beyond the standard operating agreement to make this work? I'm worried about creating an arrangement that looks good on paper but might not hold up under IRS scrutiny.

I'd recommend checking out Kingdom Trust and Directed IRA - both were knowledgeable about multi-sig setups when we were shopping around. Just be prepared to pay higher fees for crypto-specialized custody. We did create additional documentation beyond the standard agreements. Our attorney drafted a "Digital Asset Custody Addendum" that specifically addresses the multi-signature arrangement, defines the roles of each key holder, and explicitly states that the arrangement doesn't constitute distribution or constructive receipt of the assets. We also maintain a transaction log that documents the approval process for each transaction, showing that the custodian remains involved in all movements of funds.

This makes sense conceptually, but do you have any sources that support this interpretation? I'd love to have something concrete to show my own attorney who's being super conservative about this.

This is exactly the kind of detailed structure I've been looking for! Your approach with the LLC fiduciary role seems much more defensible than just holding keys personally. A couple of follow-up questions if you don't mind - did your custodian require any specific language in the operating agreement about their oversight rights? And how frequently do you report to them about transactions? I'm trying to figure out what level of involvement keeps them sufficiently "in the loop" to maintain that custodial relationship you mentioned. Also, did you run into any issues with the LLC bank account setup, or do most banks understand this kind of IRA-owned LLC structure now?

Yes, the custodian did require specific language! They insisted on clauses that explicitly grant them "inspection rights" over all LLC records and transactions, plus the ability to request immediate reporting on any asset movements. We report quarterly unless there's significant trading activity, then it's monthly. For the bank account setup, it was actually smoother than expected. We used a local credit union that had experience with business accounts for investment LLCs. The key was having all the documentation ready upfront - the IRS determination letter, LLC articles showing the IRA as sole member, and a resolution from the custodian authorizing the account opening. One thing I'd add is that we also included a "custodial veto" provision where the custodian can block transactions they deem inappropriate for the IRA. This added layer of oversight helps demonstrate that we haven't completely removed them from asset control, which seems important for distinguishing from the McNulty situation.

Great question about the costs! I've been running my SDIRA LLC setup for about 18 months now and can share some real numbers. Annual custodial fees run about $800-1200 for crypto-specialized custodians, LLC maintenance (registered agent, state fees) is around $300-500, and I spent about $2500 upfront on legal documentation. The ongoing compliance work takes maybe 4-6 hours per quarter for reporting and record-keeping. So total annual cost is roughly $1500-2000 plus your time. Compare that to some traditional crypto custodians charging 1-2% annually on assets, and the LLC route can actually be cheaper if you have substantial holdings. As for IRS interactions - no audit yet (knock on wood), but I did have to provide documentation during a routine correspondence review last year. The IRS accepted my explanation and supporting documents without further questions. Having that detailed paper trail really paid off. The key was being able to show the custodial relationship remained intact despite the key management arrangement. That said, everyone's risk tolerance is different. If the complexity and upfront costs are concerning, some of the newer institutional crypto custodians offer pretty good security while handling all the compliance headaches for you.