Bitcoin is still lauded as one of the best investments of the decade. It went from being essentially worthless to about $67,000 at its peak in roughly 10 years. Bitcoin’s 5-year return once topped over 2,000% — largely outperforming all other asset classes. For most Wall Street strategists and all kinds of investors, the consensus is clear — there’s an incredible opportunity here. Buying Bitcoin and other cryptos with an IRA makes it an even more tempting without painful capital gains taxes cutting into your profits.
Looking for ways to diversify your portfolio and turbocharge your retirement savings? Some investors consider the option to invest in Bitcoin through self-directed individual retirement accounts, which can either be traditional or Roth. Investors eyeing Bitcoin as a long-term investment are looking to tap into this largely unregulated industry. Here's a look into how to buy Bitcoin with an IRA and if it might be a great investment for you.
How Does a Bitcoin IRA Work?
Just to be clear, a Bitcoin IRA is a self-directed individual retirement account (SDIRA) that holds investments in Bitcoins. This is unlike a traditional IRA that limits your investments to stocks, precious metals or bonds. While there are many references to Bitcoin IRAs, there’s no specific Internal Revenue Service (IRS)-backed account designed for cryptos.
Since IRS Notice 2014-21, Bitcoin and other cryptocurrencies held in retirement accounts are treated as property — which implies they’re taxed in the same manner as bonds and stocks. As a result, any IRA holders who want to include cryptocurrencies in their retirement accounts must enlist a custodian to comply with the regulations.
The main difference between a traditional IRA and a Bitcoin IRA is that you’ll most likely be interacting with 3 different entities:
- Bitcoin IRA service providers: These service providers are the companies you’ll deal with when looking to add bitcoin to your IRA. They’re essentially the financial rails through which your assets will be converted into Bitcoin.
- Self-directed IRA custodians: Custodians are usually brokerages, credit unions, or banks that hold assets in an IRA. Traditional IRAs invest in bonds and stocks while self-directed IRAs let you hold other assets like precious metals, real estate or cryptocurrency.
- Wallet or custody providers: A Bitcoin IRA service provider will partner with a trusted custody provider or wallet solution that securely holds the keys to an investor’s Bitcoin funds.
Previously, it was difficult to find a custodian that accepts bitcoin in an IRA — the narrative has since changed with the inception of players like iTrustCapital, Bitcoin IRA, BitIRA and Equity Trust. But there’s a disclaimer: The custodian has no fiduciary responsibility to you, so choosing the right provider of your crypto IRA is more important.
Generally, a Bitcoin IRA will have a minimum monthly account fee, holding fee, establishment fee and fees for fund transfers and purchasing assets. Traditional IRAs typically don’t have such fees.
Pros of Bitcoin IRAs
Bitcoin IRAs provide a host of unique benefits, including:
- Portfolio diversification: As you already know, when it comes to investing, you shouldn’t put all your eggs in 1 basket. Investors may find that including Bitcoin holdings may add the much-needed diversification to their retirement portfolios.
Why so? Bitcoin technically moves independently from individual economies, currencies and markets, so it may help protect your retirement account in the event of a huge market downturn.
- Protection of your retirement savings from inflation: Bitcoin has a hard limit (fixed total supply) on the number of tokens that are available, which makes it immune to the effects of artificial inflation.
Cryptocurrencies become harder to obtain when the supply increases, also called adaptive scaling. Unlike the easy-to-get dollar that’s printed on demand, a Bitcoin IRA lets you hedge your retirement savings against inflation.
- No influence of central bank policies: Bitcoin and other cryptocurrencies are decentralized — they don’t rely on the performance of the central banking system. As a result, cryptocurrencies have no controlling entity that the money flows through, which implies that this part of your retirement funds won’t be subject to manipulation. Banks and governments can’t interfere.
- Tax savings: All thanks to the IRS Notice 2014-21, Bitcoin is treated as personal property. As a result, any gains you accrue may be retained tax-free until you take a distribution.
But you’ll also enjoy huge benefits when you buy Bitcoin for your retirement account and sell it later while keeping the funds within the IRA. In this case, you can reinvest your money into an IRA-eligible asset and receive tax-deferred benefits. These assets may include bonds, stocks, mutual funds, precious metals, ETFs, some types of real estate and more.
- Tremendous growth: If Bitcoin’s current run is something to go by, a Bitcoin IRA can give you unparalleled growth. Cryptos are breaking into the mainstream, and payment giants PayPal recently added native support for digital currencies.
Bitcoin has topped over 2,000% in return over the last 5 years. By comparison, you can expect an average annual return of 8% with the S&P 500 Index. However, remember that past performance doesn’t guarantee future returns.
- Easy management: Managing cryptocurrencies through a wallet and exchange can be a pain, particularly if you’re not technically inclined. Luckily, a Bitcoin IRA can do all the heavy lifting for you. Just fund your account, log in and trade.
Cons of Bitcoin IRAs
- Volatility: Bitcoin has shown erratic volatility at times, and it’s the main reason many people consider this asset class risky. If you have a low risk tolerance, volatility may be a huge drawback. Seeing your retirement funds fall by more than 20% in a day can be too much to take. That doesn't mean that Bitcoin can't be a great buy for your IRA, just that it likely shouldn't make up all of your portfolio.
- Fees: Arguably the most certain drawback of investing in Bitcoin IRAs is the fees involved. Setting up a self-directed IRA could rise to the tune of several thousand dollars — though this varies between providers. Besides the account setup fees, you might also have to pay recurring maintenance and custody fees.
You still won’t be in the clear of fees if trades are performed on your behalf — you can expect to pay fees in excess of 1% per trade. You’ll also incur additional fees if you choose to close down your SDIRA and withdraw your money prematurely. Put together, the final fees and taxes could eat into the tax advantages and profits earned by the Bitcoin IRA.
Best Crypto IRA Platforms
Here’s the best of the breed if you’re looking to guy Bitcoin with a crypto IRA:
Best for Low Fees: iTrustCapital
iTrustCapital is a leading digital asset IRA trading platform that boasts costs as much as 90% lower than other IRA providers. Its transparent pricing includes a 1% crypto trade fee, $50 for gold over spot per ounce and $2.50 for silver over spot per ounce. The platform also charges a $29.95 monthly account fee for services like:
- Setting up a new IRA
- All the necessary tax/IRS reporting
- Unlimited storage with institutional custody partners
- Facilitating contribution, rollover or transfer to fund your IRA
- The iTrustCapital platform support and maintenance
As an iTrustCapital client, you can log into your account and make trades 24/7. All trades execute within 2 minutes and settle within 15 minutes. And if you switch from a different provider, iTrustCapital welcomes you with an In-Kind Transfer — you won’t have to liquidate your cryptocurrency holdings.
Its specialists will not only guide you through the transfer but also follow up with your previous IRA provider to ensure all assets are transferred.
Best Full-Service Platform: Bitcoin IRA
Bitcoin IRA is the world’s pioneer cryptocurrency IRA that takes care of your investment needs with a full-service process. Account setup is easy since the platform’s specialists help with account creation and rolling over your existing 401(k), traditional IRA or Roth IRA. You should be able to start 24/7 live trading within a few days of opening your IRA account.
Bitcoin IRA provides world-class security and custody for your digital assets. First, your assets are stored offline with BitGo, which is powered by BitGo Inc.’s technology — the largest processor of on-chain Bitcoin transactions. All assets under custody are also insured for up to $100 million from BitGo.
The platform also charges a 1-time service fee that varies based on your investment amount. The service fee covers the company’s comprehensive services like best-in-class security storage, set up of a SDIRA and rollover of retirement funds, among others. This is a lot easier to understand than the often confusing IRA fee structures other platforms use.
Best for Diversifying Your Retirement Funds: My Digital Money
My Digital Money is a U.S.-based crypto trading platform that partners with My Equity Trust to provide self-directed crypto IRA products. After a one-time setup fee of $50, you can invest with your IRA funds and earn tax-free or tax-advantaged profits that improve your retirement portfolio. This is a pretty low fee for the service.
You can open a range of IRA accounts, including:
- Simple IRA
- Traditional IRA
- Roth IRA
- Simplified Employee Pension Plan (SEP) IRA
You have complete control of your IRA funds, and you can always trade crypto independent of your IRA on the same platform, if you so choose. After setting up your account on the MDM platform, it allows you to trade away from the prevailing markets, reducing risk and helping you purchase at the best price possible.
You can use limit orders that buy or sell at specific prices or after certain price changes. This makes it easier to set goals for your portfolio, reach them routinely and keep an eye on your money. Plus, you can learn more about crypto IRA options from the platform, reach out to the customer support team for assistance or allow MDM’s prompts to guide you.
Best for Security: BitIRA
BitIRA gives you a simple, streamlined and incredibly secure way to open an IRS-compliant digital IRA. Having worked with some of the largest custodians of retirement accounts like Fidelity and Merrill Lynch, BitIRA knows how to get digital assets in your retirement quickly and efficiently.
BitIRA ensures robust security for your investments by including end-to-end insurance against any type of fraud, theft, hacking and mistakes. The company holds steadfast to its true cold storage — your device is held offline and housed inside Class III vaults to ensure round-the-clock security.
Depending on your custodian, cash deposits of up to $250,000 on your account with Preferred Trust or 3.75 million with Equity Trust company are fully covered by the FDIC.
Current Bitcoin Price
You must stay on top of the price movements if you want to trade Bitcoin or any other cryptos while holding your IRA.
How to Add Bitcoin to Your Retirement Account
Buying Bitcoin with a regular retirement account is a bit easier than with your IRA but both are quite simple:
- Opening a self-directed investment retirement account through an IRA custodian.
- Find a bitcoin facilitator or purchase Bitcoin yourself from an exchange.
- Fund your self-directed IRA through a transfer or rollover.
- Hold Bitcoin in the IRA until you’re 59 ½ years old, otherwise, you’ll pay a penalty for early withdrawal.
A self-directed IRA carries the same regulatory requirements as an ordinary IRA. Besides, you can’t access your money until you reach 59 ½ years of age. Remember, you’re in charge of your own investment decisions with a self-directed IRA.
Retire Early with a Bitcoin IRA
Many young investors are now looking to diversify their retirement accounts by adding Bitcoin and other cryptocurrencies. There’s no doubt that the rise of cryptocurrencies may help you retire sooner, but its volatility could age you along the way. All in all, Bitcoin IRA may be a good last-minute source of tax benefits and hedge against inflation.
Be sure to take into account the speculative nature of Bitcoin, all the rules that govern self-directed IRAs and the dynamic regulations surrounding digital assets.
People Also Ask
Can I buy Bitcoin in my Fidelity IRA?
As of this writing, you cannot buy or sell any cryptocurrency with a Fidelity account. The only functionality at this time is the ability to view crypto balances on Fidelity if you link it with your Coinbase account.
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