How to Invest in NFTs With an IRA: Is It Allowed?

The growing popularity of NFTs has led many investors to ask if these digital assets can fit inside a retirement account. For years, the answer remained uncertain. 

In 2025, the IRS provided clarification — NFTs may be treated as collectibles depending on what the token represents. Under a look-through test, if an NFT is tied to an item considered a collectible under Section 408(m), an IRA purchase could be taxed as a distribution. That means investing through an IRA is not automatically allowed. The outcome depends on the NFT’s underlying asset and on each custodian’s policy.

Keep reading to learn how the IRS views NFTs in retirement accounts and what investors should know before using their IRA for this emerging asset class.

Is Investing in NFTs Through a Roth or Traditional IRA Allowed by the IRS?

The IRS has made it clear that investing in NFTs through a retirement account is not as straightforward as buying other assets. You may invest through an IRA only if the NFT does not qualify as a collectible under federal rules. This distinction matters because owning a collectible inside an IRA is treated as a taxable distribution. This means the purchase is immediately taxed as though you withdrew the funds.

Under IRS Notice 2023-27, NFTs are subject to a look-through analysis. This means the IRS reviews what the NFT represents, not just the fact that it is a digital token.

✅ If the NFT represents a collectible, such as artwork, gems, or alcoholic beverages under Section 408(m), it is not allowed in an IRA.

✅ If the NFT represents something else, such as a digital record of ownership in an asset that is not a collectible, it might be allowed, depending on your custodian’s policy.

Most custodians do not currently support NFTs because of the compliance complexity and valuation challenges. However, some self-directed IRAs (SDIRAs) may allow you to hold digital assets, provided they are not classified as collectibles. To do so, you generally need:

📝 Note: The “digital asset” label used for tax reporting does not automatically make an NFT permissible in an IRA. What matters is what the NFT represents, not its digital format.

📌 Also read: How To Invest In Cryptocurrencies With a Roth IRA

What Is a Self-Directed IRA?

A self-directed IRA (SDIRA) is a type of retirement account that gives investors more control over what they can hold inside the plan. It follows the same contribution limits, distribution rules, and tax benefits as traditional or Roth IRAs. The difference lies in broad investment flexibility. Instead of being limited to stocks, bonds, and mutual funds, you can use a self-directed IRA to invest in alternative assets such as real estate, precious metals, private equity, and certain digital assets.

These accounts are administered by specialized custodians who handle recordkeeping and compliance but leave the investment choices to you. Because of this broader flexibility, investors often use SDIRAs to diversify beyond public markets.

📝 Note: Managing an SDIRA requires careful compliance. Every investment must meet IRS rules, and any violation (such as acquiring a collectible) can result in taxes or penalties.

📌 Click here to learn more about self-directed IRAs.

What Can You Invest in Through a Self-Directed IRA?

A self-directed IRA can hold a wide range of assets that are generally not available in standard IRAs. However, the IRS prohibits certain categories such as collectibles and life insurance. Below are some of the most common options:

✅ Real Estate – Includes residential or commercial properties, undeveloped land, or shares of real estate investment trusts (REITs).
✅ Private Equity – Investments in privately held companies or startups that are not listed on public exchanges.
✅ Precious Metals – Physical gold, silver, platinum, or palladium that meet IRS-approved purity standards.
✅ Private Lending and Notes – Loans made to individuals or businesses, often secured by promissory notes.
✅ Limited Partnerships or LLCs – Ownership interests in partnerships or limited liability companies.
✅ Tax Lien Certificates – Claims purchased from local governments for unpaid property taxes.
✅ Crowdfunding and Peer-to-Peer Lending – Participation in lending platforms or projects that connect investors with borrowers.
✅ Digital Assets – Some SDIRAs allow cryptocurrencies or NFTs, provided the custodian supports them and the NFT does not represent a collectible under Section 408(m).

Not all SDIRAs allow every asset type. Some specialize in real estate or private lending, while others focus on digital assets. If your goal is to invest in NFTs, you must find a custodian that supports digital assets and confirm that any NFT acquired does not look through to a collectible under IRS rules.

📝 Note: Always verify the custodian’s list of permitted assets before funding your SDIRA. Rules vary widely, and each provider interprets IRS guidance differently.

Benefits of Investing in NFTs Through an IRA

Investing in NFTs through a retirement account can offer potential tax advantages, but only when the NFT is not classified as a collectible under Section 408(m). The IRS treats most digital assets, including NFTs, as property for tax purposes. This means that gains from NFT sales are generally considered capital gains, unless special rules apply.

When held outside of retirement accounts, each NFT sale or trade could generate taxable income. Holding eligible NFTs inside an IRA can change how taxes apply:

✅ Tax-Deferred or Tax-Free Growth – In a Traditional IRA, gains grow tax-deferred until you take withdrawals in retirement. In a Roth IRA, qualified withdrawals are tax-free, which means your potential NFT earnings can compound without immediate tax impact.

✅ No Annual Capital Gains Taxes – Inside an IRA, you do not pay capital gains tax on each NFT trade. All earnings stay in the account and continue to grow, subject to the account’s withdrawal and distribution rules.

✅ Compounding Advantage – Because taxes are deferred or eliminated (for Roth accounts), your entire balance, including profits from approved NFT investments, can be reinvested. Over time, this compounding can potentially lead to stronger long-term growth, although NFT values remain highly volatile.

📝 Note: These tax benefits apply only if your NFT investment is permitted under IRS rules. If the NFT is deemed a collectible, the purchase could trigger a taxable distribution.

📌 Also read: Benefits & Tax Advantages of a Roth IRA

Investing in NFTs Through a Traditional IRA vs. Roth IRA

There are two main types of IRAs used for investing — Traditional and Roth. Both offer tax advantages, but they work in different ways.

With a Traditional IRA, you make contributions using pre-tax income. In many cases, this provides a tax deduction for the year you contribute. However, the deduction may be limited if your income is high or if you (or your spouse) are covered by an employer plan. Inside the account, your investments grow tax-deferred, meaning you do not pay taxes until you withdraw the funds. Withdrawals in retirement are generally taxed as ordinary income.

In contrast, a Roth IRA is funded with post-tax income — money you have already paid income taxes on. You do not get a deduction upfront, but your qualified withdrawals in retirement are tax-free.

✅ Traditional IRA: Tax-deductible contributions (depending on income and coverage), tax-deferred growth, and taxable withdrawals.

✅ Roth IRA: No deduction when contributing, tax-free growth, and tax-free withdrawals if qualified.

✏️ Hypothetical Example:

If you invest $1,000 in an NFT through a Roth IRA and it grows to $100,000, you would not owe taxes on your withdrawal during retirement, provided it meets the Roth’s qualified distribution rules (after age 59½ and a five-year holding period). If you made the same investment through a Traditional IRA, the full $100,000 would be taxable as ordinary income when withdrawn.

📝 Note: These examples assume the NFT is permitted under IRS rules. That is, it does not represent a collectible under the look-through test of Section 408(m).

Are NFTs Considered Collectibles?

For years, it was unclear whether NFTs counted as collectibles. The IRS settled that uncertainty through Notice 2023-27. The guidance directs taxpayers to use a look-through analysis to determine whether an NFT’s underlying asset or right is a collectible under Section 408(m).

✅ If the NFT represents an item like artwork, gems, or other listed collectibles, it is treated as a collectible, and owning it inside an IRA triggers a taxable distribution.

✅ If the NFT represents another type of asset, it may be permitted, depending on your custodian’s policy. This includes a digital record of ownership for something that is not a collectible. 

📝 Note: Being classified as a “digital asset” for reporting does not override the collectibles rule. The IRS still applies the look-through test to determine tax treatment.

How Much Can You Contribute to an IRA for NFT Investing?

A self-directed IRA follows the same contribution limits as regular IRAs. For 2025, the contribution limit is:

✅ $7,000 if you are under age 50
✅ $8,000 if you are age 50 or older (includes the $1,000 catch-up)

This limit applies to all IRAs combined, whether Traditional, Roth, or self-directed.

✏️ Hypothetical Example:

If you contribute $2,000 to a Roth IRA and $2,000 to a Traditional IRA in 2025, you will have used $4,000 of your total $7,000 limit (or $8,000 if age 50+). You could then contribute up to $3,000 (or $4,000 if 50+) to your self-directed IRA for NFT investing.

📝 Note: Contributions can only be made from earned income, and contribution eligibility may depend on your modified adjusted gross income (MAGI).

Roth IRA Income Limits for 2025

The Roth IRA has income-based limits on contributions. For 2025, the IRS phase-out ranges are:

✅ Single filers: $153,000–$168,000
✅ Married filing jointly: $236,000–$246,000

If your income falls within these ranges, your allowed contribution is reduced. If it exceeds the top of the range, you cannot make a direct Roth IRA contribution for that filing status.

However, high earners can still contribute through a Backdoor Roth IRA. This involves making a nondeductible contribution to a Traditional IRA (which has no income limits) and then converting those funds to a Roth IRA. The Roth income limits apply only to direct contributions, not to rollovers or conversions.

How Do I Withdraw My NFTs From My IRA?

You can withdraw assets from an IRA either in cash or as an in-kind (property) distribution. An in-kind distribution means the asset itself, such as an NFT, is distributed instead of being sold first. For tax purposes, the value reported is the NFT’s fair market value at the time of withdrawal.

If you plan to roll over the NFT to another retirement plan, you must follow IRA rollover rules. Many plans do not accept in-kind property transfers. In those cases, you may need to sell the NFT and roll over the cash proceeds instead. A trustee-to-trustee transfer is usually the safest option, as it avoids the 60-day rollover deadline.

📝 Note: If your NFT is illiquid or difficult to value, your custodian may require an independent appraisal before processing the distribution.

Traditional IRA Withdrawal Rules

Withdrawals from a Traditional IRA are generally allowed after you reach age 59½. Before that age, distributions typically incur a 10% early withdrawal penalty, in addition to ordinary income taxes, unless you qualify for an IRS exception (see IRS Publication 590-B).

✅ At or after age 59½: Withdrawals are taxed as ordinary income.
❌ Before age 59½: Subject to both regular income tax and a 10% early withdrawal penalty unless an exception applies.

📌 Also read: Traditional IRA Withdrawal Rules

Roth IRA Withdrawal Rules

Roth IRAs are more flexible because contributions are made with after-tax dollars. You can withdraw your contributions at any time, for any reason, without taxes or penalties. However, earnings follow stricter rules.

✅ Qualified withdrawals: Tax-free and penalty-free if your account is at least five years old and you are age 59½ or older.

❌ Nonqualified withdrawals: If you withdraw earnings before meeting these requirements, the earnings portion is subject to taxes and possibly a 10% penalty.

📝 Note: Always track your contributions and earnings separately. This helps ensure you follow the Roth withdrawal ordering rules correctly.

📌 Related: Roth IRA Withdrawal Rules

Final Thoughts

Investing in NFTs through an IRA is possible under certain conditions, but it comes with strict IRS rules and added complexity. The key factor is whether the NFT represents a collectible under Section 408(m). If it does, the investment could trigger a taxable distribution. For those considering NFTs as part of their retirement strategy, using a self-directed IRA with a knowledgeable custodian is essential.

NFTs remain highly speculative and volatile, so careful due diligence and professional guidance are strongly advised before including them in a retirement plan.

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