Bitcoin IRA: How To Invest For Retirement With Cryptocurrency (2024)

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For many fans of cryptocurrency, investing in Bitcoin for retirement is a natural choice. They believe in the long-term potential of crypto, and they understand the substantial risks of holding BTC over the long term.

If you’d like to hold Bitcoin in an individual retirement account, there are plenty of special considerations to take into account. A Bitcoin IRA can provide you with the tax advantages of traditional and Roth IRAs, but you need to understand the additional IRS rules and regulations governing this type of retirement account.

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What Is a Bitcoin IRA?

A Bitcoin IRA is a type of self-directed IRA that is designed to hold cryptocurrency.

“Under the umbrella of self-directed IRAs, Americans have the option to purchase a wide variety of alternative assets,” says Jay Blaskey, head of sales at BitIRA, a Bitcoin IRA provider.

Self-directed IRAs let you invest in alternative assets like cryptocurrency, real estate, precious metals and collectables, all of which are excluded from conventional IRAs. The Retirement Industry Trust Association (RITA), a self-directed IRA industry group, estimates that 3% to 5% of all IRAs are invested in alternative assets.

Investing in Bitcoin for retirement might enhance your investment returns and provide greater diversification, although it also introduces substantially more risk to your retirement portfolio.

How Does a Bitcoin IRA Work?

In some ways, a Bitcoin IRA works much like a conventional IRA, except you’re buying cryptocurrency instead of mutual funds.

You can opt for a traditional IRA or a Roth IRA, and access their substantial tax benefits. It has the same annual contribution limits as a conventional IRA: $6,500 for 2023, or $7,500 if you’re 50 or older. In 2024, those limits will be $7,000 and $8,000 if you’re 50 or older. You can roll over funds from an existing IRA or workplace 401(k).

But the big differences from conventional IRAs make opening and managing a self-directed Bitcoin IRA challenging and potentially expensive. Instead of the one-stop-shopping experience you get at brokerage firms, where you can set up a conventional IRA and buy and sell securities in one place, a Bitcoin IRA requires extra steps.

There are three components involved in a Bitcoin IRA:

  • Crypto exchanges. Exchanges facilitate the purchase and sale of crypto held in your Bitcoin IRA.
  • Custodians. All self-directed IRA use custodians to hold your assets, and ensure your account adheres to IRS rules. Banks and other financial institutions are custodians for conventional IRAs, while there are specialized crypto custodians for Bitcoin IRAs.
  • Secure storage solutions. These protect your crypto from theft. Most Bitcoin IRA providers utilize proprietary secure storage methods to help keep your digital coins safe once you purchase them.

Companies that offer self-directed Bitcoin IRAs may provide all three components, or there may be different companies involved in managing each step. For example, a Bitcoin IRA company might partner with a major crypto exchange to manage purchases and sales of crypto.

One advantage of a Bitcoin IRA for crypto investors is that it can simply your tax game. That’s because buying and selling assets in an IRA shelters you from capital gains taxes.

“The single greatest headache for Bitcoin investors is tracking trades and calculating the taxes they owe,” says Eric Satz, CEO and founder of Alto, an alternative IRA company.

Advantages of Bitcoin IRAs

  • Diversification. “Cryptocurrency is an asset class that is not correlated with stocks and bonds, which is what most Americans hold in their retirement accounts,” says Blaskey. This may help protect your retirement balance, even though crypto prices can be quite volatile.
  • Potential returns. While Bitcoin may be very volatile, it also offers the potential for huge gains. While BTC ended on a high note in 2021, it’s down 60% for the year.
  • Tax advantages. Each time you sell crypto for a profit, you owe capital gains. Buying and selling crypto in a self-directed IRA alleviates this burden as you aren’t taxed as long as the money and assets remain in your account. In addition, you’ll get to benefit from the compounding growth of value you aren’t losing to taxes, says Satz.

Disadvantages of Bitcoin IRAs

  • Additional fees. Unlike with normal IRAs, which very seldom charge any fees, self-directed IRAs typically come with several additional fees. These may include set-up fees, transaction fees and annual account management fees.
  • Crypto exchange limitations. Some Bitcoin IRA companies only allow you to trade on affiliated currency exchanges.
  • Others let you choose your preferred exchange. If you have a particular crypto exchange you want to invest with, make sure your Bitcoin IRA provider allows it.
  • Price volatility. Market volatility is a substantial risk for crypto, especially for investors close to retirement.
  • No tax loss harvesting. In a taxable investment account, you can take advantage of tax loss harvesting. That means you can use some of your investment losses to offset capital gains taxes. This is not possible in a Bitcoin IRA.
  • Retirement planning complexity. You cannot invest in traditional securities like stocks and bonds in a Bitcoin IRA. And no one should invest all of their retirement nest egg in cryptocurrency. Anyone who opts for a Bitcoin IRA should maintain at least one other account for the balance of their retirement investments. This can add a layer of complexity to your retirement planning.

How to Open a Bitcoin IRA

Once you’ve decided you want a Bitcoin IRA, you need to decide where to open your account. That means locating a custodian to host your self-directed IRA and enable you to make cryptocurrency trades.

Like opening any brokerage account, you’ll need to have your full legal name, address, Social Security number and banking information available.

As you’re researching Bitcoin IRA custodians, remember that you’ll want to make sure the account types, exchanges and cryptocurrencies available line up with your goals. Be sure to compare any relevant fees as these can really add up over time and impair your ability to reach your retirement goals.

How to Buy Bitcoin in a Self-Directed IRA

  1. Choose a custodian. Not all IRA custodians offer cryptocurrency investment options, so it’s essential to find a custodian that allows for Bitcoin investment in an IRA. Some popular custodians that offer Bitcoin investment options include Bitcoin IRA, BitIRA, and Equity Trust Company.
  2. Open a self-directed IRA. Once you have chosen a custodian, you’ll need to open a self-directed IRA account. This type of IRA allows you to invest in assets beyond traditional stocks, bonds, and mutual funds.
  3. Fund your self-directed IRA. After opening a self-directed IRA account, you’ll need to fund it. You can do this by transferring funds from an existing IRA or 401(k), making a contribution, or rolling over a 401(k) into an IRA.
  4. Purchase Bitcoin. Use the funds to purchase Bitcoin through the custodian’s platform. The process for buying Bitcoin through an IRA is similar to buying it on a cryptocurrency exchange, but the purchase is made through the IRA custodian’s platform.
  5. Store your Bitcoin. Since your Bitcoin investment is held within your IRA, it’s crucial to ensure that it’s stored securely. Your custodian will likely offer secure storage options, such as cold storage or a multi-signature wallet.

Can You Buy Bitcoin in a 401(k)?

There are a few 401(k) plans that allow participants to hold part of their account balance in crypto.

One 401(k) plan provider, ForUsAll, cooperates with crypto exchange Coinbase to offer a plan that lets participants hold some of their assets in crypto. Employers with a Fidelity 401(k) plan may allow participants to allocate a share of their savings to Bitcoin.

While there are options allowing plan participants to buy Bitcoin in their 401(k)s, it’s unlikely that you’ll be offered the option.

“Just like stocks, Bitcoin can be purchased in a 401(k),” says Begman of IRA Financial. “However, from a practical standpoint, employer-sponsored 401(k) plans generally don’t allow for any alternative investment options because of the ERISA fiduciary rule.”

Fiduciary rules governing employer-sponsored plans state that plans must offer a range of investment options while protecting plan participants from large losses. Given how volatile cryptocurrencies can be, employers tend to avoid offering these investments as plan options.

Can You Buy Bitcoin in a Solo 401(k)?

Small business owners and solo entrepreneurs can save for retirement in a solo 401(k) plan. Some, but not all, plan providers let you hold cryptocurrency in solo 401(k) accounts.

“In the case of a Solo 401(k) plan, which is not subject to ERISA rules since there are no non-owner employees, Bitcoin and other alternative asset investments are common so long as the plan documents allow,” says Bergman.

As a bonus, solo 401(k)s have much higher contribution limits than IRAs.

Should You Open a Bitcoin IRA?

For people who are close to retirement, opening a Bitcoin IRA probably is not the most prudent choice, given the volatility of cryptocurrencies.

Investors who have a longer time horizon and higher risk tolerance might consider putting a small portion of their retirement savings in alternative assets like Bitcoin. This choice could offer upside and hedge against potential losses in their conventional holdings.

Just remember, Bitcoin IRAs come with more moving parts than conventional retirement accounts. This means you’ll need to do much more due diligence, not only when researching potential cryptocurrencies but also when determining the right IRA provider.

Make sure you read the fine print and pay close attention to fees, as many costs are not readily apparent without doing some in-depth research. Perhaps most importantly, investments in Bitcoin and other cryptos should only be a small percentage of your overall retirement portfolio.

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Bitcoin IRA: How To Invest For Retirement With Cryptocurrency (2024)

FAQs

How to invest in a bitcoin IRA? ›

You can set up a bitcoin IRA with investment platforms offering crypto-linked IRAs as a retirement savings account option. Once you decide on a bitcoin IRA provider, meet the platform's minimum investment and other eligibility requirements.

Is a bitcoin IRA a good idea? ›

BitcoinIRA is best for retirement-focused individuals confident that crypto-investments like bitcoin and ether will have long-term growth potential. Cryptocurrencies are significantly more volatile than most retirement investment options (stocks, bonds, ETFs) but may be worth it for investors with high-risk tolerances.

Is cryptocurrency a good investment for retirement? ›

Cryptocurrencies offer potentially high returns but come with significant volatility, so invest cautiously and only allocate a small portion of your retirement portfolio.

Can I withdraw crypto on bitcoin IRA? ›

There are some advantages to investing directly in cryptocurrency. If you use a crypto IRA, you'll be able to withdraw your holdings as crypto once you are eligible for withdrawals. If you invest in ETFs, you'll only be able to withdraw your holdings as cash.

How much does Bitcoin IRA cost? ›

BitcoinIRACoinIRASwan
Monthly FeeMonthly FeeMonthly Fee
0.08%$0$20 for balances under $100,000; 0.25% per year for balances over $100,000
Termination FeeTermination FeeTermination Fee
$300$75$0
6 more rows
Jun 27, 2024

Do you pay taxes on Bitcoin IRA? ›

Tax on Bitcoin IRAs depends on the specific type of IRA you have and whether it's a traditional IRA or a Roth IRA. Contributions to traditional Bitcoin IRAs are tax deductible (up to a certain limit). You'll pay tax when you withdraw at the point of retirement though.

Does Bitcoin IRA pay interest? ›

One of the features of Bitcoin IRA is the ability to earn interest on your assets. With the Earn program, you can earn up to 6% interest on cash and crypto. This interest accrues daily and pays out monthly. This is a great option for those who want additional ways of earning within their IRA.

Is a Bitcoin IRA FDIC-insured? ›

BitIRA offers cold storage, which means your bitcoin is stored offline, and cash deposits are FDIC-insured up to $3.75 million per account. Security is particularly important in the world of crypto, which has seen several high-profile scandals over the last couple of years concerning the custody of customer assets.

What are the risks of crypto IRA? ›

They are considered an alternative investment for retirement. Bitcoin IRAs offer diversification to a retirement portfolio, but they are considered high risk and often involve additional fees and costs. Bitcoin investments are subject to significant price swings, which adds to their risk.

How much bitcoin can 20 dollars buy? ›

The current 20 USD to BTC exchange rate is 0.0003068 BTC and has increased by 1.48% over the past 30 days.

How much to invest in bitcoin to make money? ›

At the very least, you should have enough emergency savings before putting any funds into crypto. Once you're ready to invest, you should make it no more than 5% of your portfolio. This is enough to gain exposure to potential gains while limiting the impact of losses on the overall portfolio.

Is Bitcoin IRA legit? ›

Investors looking for strong insurance for their digital assets will find what they need in Bitcoin IRA's offering. Coin IRA offers the best investor experience, while BitIRA delivers the best security measures. Finally, Equity Trust rounds out our list as the best platform for self-directed investments.

How to open a Bitcoin IRA? ›

All you need to do is pick a Bitcoin IRA provider (custodian) and open an account. You may be required to make an initial minimum deposit to do this. Once your account is open, you can use your provider's platform to buy, sell, and trade cryptocurrencies within your IRA account.

What are the benefits of a Bitcoin IRA? ›

In addition, one of the main benefits of a crypto IRA is that investors don't have to pay capital gains tax on cryptocurrency when held in a retirement account. This can be a great perk for crypto enthusiasts who may be subject to capital gains taxes in other types of trading.

What is the limit for Bitcoin IRA? ›

Are there any limits to Bitcoin IRA contributions? Bitcoin investments must adhere to IRA contribution limits, which are $7,000 for 2024. If you are 50 or older, you can contribute up to $8,000 for 2024, thanks to a $1,000 catch-up contribution.

Is Bitcoin IRA insured? ›

The majority of our clients' cryptocurrency holdings are stored in a Bitgo Wallet. This wallet boasts insurance coverage of up to $250 million and utilizes cold storage practices.

Can I convert my IRA to Bitcoin? ›

Investors can rollover their traditional IRAs into Roth IRAs for tax-free capital gains. A self-directed Roth IRA gives you more investment choices. IRA holders with these accounts can buy alternative assets, such as crypto, real estate, and precious metals.

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