How to Buy Altcoins With an IRA

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Contributor, Benzinga
October 13, 2022

Decided you want to jump straight to how to buy altcoins with an IRA? You're in luck! Bitcoin IRA is one of the leading crypto IRA platforms with a great selection of altcoins and low fees.

It can never be overstated how important it is to save for retirement. Far too many Americans either have no savings or are saving at a rate well below what is recommended for retirement. 

According to a survey by Bankrate.com, only about 4 out of 10 Americans have enough savings to cover an unplanned expense of $1,000. Another study by gobankingrates.com found that 37% of Americans are not saving anything for retirement. 

Many investment options are available today for retirement accounts, including cryptocurrencies. Cryptocurrencies are inherently risky, but with that risk comes the potential for massive gains if purchased at the right time. As with any investment, you should always conduct thorough research on any cryptocurrency that piques your interest. Because it is likely to be a long-term investment, dollar cost averaging can be a good strategy because it eliminates the need to time the market.

For many individuals, particularly younger individuals, cryptocurrencies can represent the high-risk element of their portfolio. But it is up to each investor to establish their risk tolerance. Younger individuals can bear greater risk since they have more time to recover from losses. The number of high-risk assets that older investors own should be kept to a minimum. The older the investor, the less time they have to recoup losses.

It is now so simple to open an investment account for retirement that there is no reason not to. Almost everyone should be able to begin putting money aside for retirement. Most people should take advantage of a self-directed IRA in addition to enrolling in a 401(k) through their employer.

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How to Buy Altcoins With an IRA

Thanks to platforms like Bitcoin IRA, the process couldn't be more straightforward. Bitcoin IRA was founded in March 2015 and is the world’s first and most trusted crypto IRA platform. You can create an account in under three minutes, fund your account and buy and sell over 60 altcoins 24/7 in real-time. To get started, you have the choice of opening a new IRA or rolling over an existing IRA or 401(k). 

How Does a Crypto IRA Work?

A crypto IRA is classified as a self-directed IRA, which allows you to invest in alternative asset classes such as cryptocurrencies. A crypto IRA works much like a regular IRA, except you invest in cryptocurrencies instead of mutual funds. 

Depending on your tax strategy, you can choose between a Traditional or Roth self-directed IRA. With a traditional self-directed IRA, crypto contributions are tax-deductible, and you defer paying taxes until you access the funds when you retire. When you contribute to a Roth self-directed IRA, the contributions are not tax-deductible. But, you receive more significant tax benefits down the road by avoiding paying the capital gains tax on value increases when you do access the funds. Annual contribution limits set by the IRS are the same as for regular IRAs, $6,000 per year (2022) or $7,000 if you are over 50.

Crypto IRA platforms work with a custodian to facilitate trades and store the crypto assets. In the case of Bitcoin IRA, it has teamed up with BitGo, the digital asset financial services leader. BitGo holds your crypto offline in a segregated cold-storage wallet at BitGo Trust.

Pros of Buying Altcoins With an IRA

One significant advantage of a crypto IRA is there is no taxable event triggered when you trade one cryptocurrency for another. For example, in a regular crypto IRA, you could trade back and forth between cryptocurrencies as often as you want but would only pay taxes as ordinary income when you retire and withdraw funds. And with a self-directed Roth IRA, the tax benefits can be even more significant.

Ideally, everyone needs a diversified portfolio that fits their risk tolerance. A crypto IRA can be a great way to increase the diversification of your investment portfolio. Holding cryptocurrencies in an IRA can also act as a hedge against inflation and the dollar's declining value.

There is also the potential for oversized gains compared to more traditional investments. As with any IRA, a crypto IRA is a long-term investment. Although there are no guarantees, the top market-cap altcoins have shown substantial price appreciation over the last few years. 

Cons of Buying Altcoins With an IRA

Before jumping into a crypto IRA, there are cons to consider. An important one that should not be ignored is fees, which can include set-up, security, custodian and transaction fees. Account minimums can be another con to consider; depending on the crypto IRA platform, they can be pretty high.

Another significant con is the volatility of cryptocurrencies. Because investing using an IRA is a long-term strategy, you have to accept that your positions within the IRA could sometimes be significantly underwater. This is where you need to determine your risk tolerance and whether a crypto IRA is age appropriate. Older investors need to be mindful not to take on too much risk.

Making contributions over a long period will help give you the lowest average price. The strategy of dollar-cost averaging into a low average price will help reduce the severity of the drawdowns. 

One last con, although not a big one, is that you can not transfer existing cryptocurrencies into your IRA because of U.S. law. 

What to Look for in Crypto IRA Platforms

When choosing a crypto IRA platform, you will want to screen potential options for the following attributes.

  • Low fees
  • Rollover options
  • User-friendly trading platform
  • Low account minimum
  • A large selection of altcoins
  • Off-line assets storage
  • Custody Insurance
  • World-class security
  • Option to hold your private keys
  • Excellent customer support

How to Buy Altcoins With an IRA

Buying altcoins with an IRA is extremely easy and not unlike buying on a crypto exchange.

Using Bitcoin IRA as an example, after creating an account, you will need to fund it. This can be accomplished by rolling over an existing IRA or depositing new funds. 

Once funding clears, you can go to the live prices page, find the crypto you want to purchase and then click on buy. Enter the amount that you wish to purchase, then complete the purchase.

Risks of Buying Altcoins With an IRA

Volatility risk is very real when buying altcoins with an IRA. Investors need to accept that there is a real possibility they will see significant drawdowns during crypto bear markets. However, investors should zoom out and take a multi-year view of altcoin price performance, which is important when screening potential candidates to include in your IRA.

Another risk to be aware of is that an altcoin project could fail. If you stick to the top market-cap altcoins, this isn't as big of a concern. However, this past May, Terra Luna, a top ten market-cap altcoin, imploded. On April 5, 2022, the price of LUNA peaked at over $119. One month later, the price collapse began, and LUNA hit a low of $0.0003 on May 12. 

Is Buying Altcoins With an IRA Worth it?

Whether or not it is worth buying altcoins with an IRA will vary depending on the investor. Older investors, especially investors closer to retirement, should probably stay clear of altcoins. On the other hand, if you are a younger investor, an altcoin IRA might be just what you need to supercharge your retirement savings.

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About Donald Hancock

Donald’s expertise lies in the technical analysis of both stocks and crypto.