Self Directed IRA and Digital Asset

[Questionasker]

Can someone suggest a CPA or qualified advisor to consult with regarding a question about a digital asset and a pre-ICO certificate within a self directed Roth IRA? 

Or perhaps provide an answer here?

This question pertains to changing custodians and doing a transfer in-kind if the current custodian cannot store and trade the token on their platform when it goes public. (Therefore I am not sure if the software keys would be considered going out of custody for a short time if I were to obtain them from the dashboard of the issuer of the token when it goes public, before transferring the asset to the new custodian.)

[dmertz]

A trustee-to-trustee transfer of an IRA, in-kind or not, is not a reportable transaction.  However, I believe that you are asking if the transaction would fail to be a trustee-to-trustee transfer but would instead be a distribution and rollover if the keys cam into your possession during the transaction.  If the transaction is treated as a trustee-to-trustee transfer, the original IRA custodian will not issue a Form 1099-R and the receiving IRA custodian will not report it as a rollover on For 5498.  If it is not treated as a trustee-to-trustee transfer, the original IRA custodian must report it on Form 1099-R as a distribution and the receiving IRA custodian must report it as a rollover on Form 5498.  The main difference between a trustee-to-trustee transfer and a distribution and rollover is that rollovers are subject to the limitation of one rollover in a 12-month period (and, of course, whether you have a distribution and rollover to report on your tax return).

My guess is that if the key is provided to you rather than just being transferred to the new IRA custodian, you have constructive receipt and the transaction would be a distribution and rollover.

[Questionasker]

dmertz thank you for that helpful reply.  That is also my guess, and concern: "you have constructive receipt and the transaction would be a distribution and rollover."  As a followup  to that, if that were treated as a rollover, could a digital asset be rolled over from one custodian to another in a self directed IRA?  ...without having to liquidate it first?  I know several sdira custodians will receive a transfer in-kind of the digital asset without it first being liquidated, but I should find out if they could receive a rollover of the asset.

[dmertz]

Unfortunately, I don't know enough about digital assets to provide any more information.  The concern is the requirement that the asset that is rolled over from one IRA to another is required to be the same property, the same-property rule.  I don't know if the digital asset can be treated as being equivalent to cash, with cash being fungible.