Investing in Bitcoin for retirement offers you substantially higher returns and diversity, but be careful because they are volatile. Here’s what to know if you have decided on a bitcoin IRA, the pros of which include:
- Diversifying your portfolio with something that is not correlated to other assets __ it could offer better risk management benefits than traditional investments such as stocks or bonds.
- The potential for greater long term gains over time since there will only ever be 21 million bitcoins mined (ever) while many fiat currencies can print more money indefinitely at any given point in time.
What Is A Bitcoin IRA?
A Bitcoin IRA is a self-directed Individual Retirement Account. Americans have the option to invest in alternative assets like real estate, precious metals and cryptocurrency through their IRAs. BitIRA head of sales Jay Blaskey says “Under the umbrella of self directed IRAs, Americans have the option to purchase a wide variety of alternative asset classes.”
Investing in Bitcoin as a retirement plan may enhance your investment returns and diversify your portfolio, but it also introduces substantially more risk to the equation. “Traditional financial institutions do not allow IRAs to invest in IRS-approved alternative assets because their focus is on earning fees through traditional investments,” says Adam Bergman of IRA Financials. “Hence the birth of self-directed IRAs.”
Between 2-5% of all IRAs are invested in alternative assets. Alternative investments have indeed been an attractive offer for those looking to diversify their portfolio, but some people believe that these type of investment vehicles may not be as safe or reliable than stocks or bonds.
How Does a Bitcoin IRA Work?
Investing in a Bitcoin IRA is like investing money into any other retirement account, except that you are choosing to invest your funds on cryptocurrency instead of traditional stock shares. You have the option between having an Individual Retirement Account (traditional or Roth) and being able to benefit from their respective tax advantages as well as Simple IRAs for small business owners who can choose SEP accounts with higher contribution limits than most conventional 401(k)s. As long as it’s done correctly, all this investment will only serve to offer security during retirement since you’ll never know what tomorrow might bring.
When you’re ready to invest in a retirement account, it’s important that you choose the right one for your needs. For some people this means opening up an IRA with their brokerage company; Yet others may want something more personalized and will opt for self-directed IRAs instead. In addition to being able to trade stocks or bonds efficiently as well as easily withdrawing funds from any of these accounts at anytime without penalty, what really sets Bitcoin IRAs apart is how they offer cryptocurrency exposure too!
It can be tricky having all three components but if done correctly there are so many benefits including tax advantages which make them hard not just on your finances but also on Earth Day because we’ll all have reduced environmental impact due to lower energy consumption when investing:
- The custodian is responsible for handling your IRA and ensuring that it follows all of the regulations set by both the IRS and government. These typically involve banks or other financial institutions, but not always
- Many people use crypto-exchanges as simple platforms on which they trade their coins against other types of currencies or assets like stocks. However, some only allow Bitcoin trading while others won’t even think about listing altcoins without having them first approved with an application process that can take months! It’s important to do research before choosing an exchange and always remember: if something seems too good be true then it probably is
- A secure storage solution protects your cryptocurrency. The IRAs that offer Bitcoin, for example, also provide a private and safe place to store it once you buy some!
A self-directed IRA provider may provide all of the above or any variation. For example, a Bitcoin IRA company might partner with a particular exchange and allow you to trade using that third party crypto exchange for an additional fee.
Advantages of Bitcoin IRAs
Bitcoin IRAs offer investors several advantages, including:
- Cryptocurrency is an investment that may help protect your retirement. Cryptocurrencies are not correlated to stocks and bonds, which many Americans hold in their retirement account as it protects the balance of money they will need when retired. However cryptocurrencies can also be volatile themselves due to changes with how people invest or have a more practical use for crypto like transacting online anonymously without using credit cards etcetera
- Crypto-enthusiast and financial advisor, Scott Bergman explains in a recent article that Bitcoin is an enticing investment opportunity for many. Though the cryptocurrency has seen some fluctuations since it’s inception 8 years ago, its skyrocketed over 400% this year alone. Given these numbers crypto enthusiasts may be interested to know how they can invest their IRA funds into cryptocurrencies like bitcoin or Ethereum with low risk on platforms such as Coinbase Pro (formerly GDAX) which offer more support than other exchanges currently available for purchase of Crypto assets
- Bitcoin investors have a major headache: calculating taxes owed on all of their trades. If you invest in Bitcoin through an IRA, like Alto’s alternative account (which also helps with bookkeeping), the IRS is out of your hair and you can enjoy growing wealth without dealing with complicated tax calculations
Disadvantages of Bitcoin IRAs
Saving for retirement with Bitcoin, however, is not without its cons:
- Fees: Unlike traditional IRAs, which allow you to invest for free, self-directed IRAs usually have a higher fee structure. Make sure you understand all of the charges associated with investing in cryptocurrency for retirement, from setup fees to trading and account administration fees.
- Exchange Limitations: You can only trade on linked currency exchanges with some Bitcoin IRA firms. Others provide you the option of selecting your favorite exchange. If you wish to invest with a certain crypto exchange, check sure your Bitcoin IRA provider enables it.
- Volatility: “Bitcoin’s price has dropped from about $20,000 in December 2017 to as low as $3,400 in December 2018,” Bergman notes. Such volatility poses a significant danger to an IRA, particularly for those nearing retirement.
- Capital Losses: Those types of losses would be unpleasant in a conventional, taxed investing account—but not without its benefit. You can usually deduct losses from your investments or use them to offset gains from other investments. This isn’t possible, though, due to the Bitcoin IRA’s tax-favored position.
- Complexity: When you invest in a Bitcoin IRA, you’ll almost certainly need to maintain at least one additional retirement account in addition to dealing with the moving parts of custodians, exchanges, and secure storage. This is because, according to Blaskey, “Bitcoin IRAs are not set up to allow traditional assets like equities, bonds, and mutual funds.” This can make retirement planning even more difficult.
Can You Buy Bitcoin in a 401(k)?
Bitcoin can be held in a 401(k), but it’s unlikely that you’ll be given the opportunity.
“Bitcoin may be purchased in an IRA or 401(k) just like stocks,” says IRA Financial’s Begman. “However, due of ERISA fiduciary restrictions, an employer-administered 401(k) plan with employees will likely not allow for any alternative investment options.”
Employer-sponsored plans are required by fiduciary regulations to provide a variety of investment options while also protecting plan participants from excessive losses. Because cryptocurrencies are so unpredictable, companies are hesitant to offer them as a plan choice. However, ForUsAll, a 401(k) provider, and Coinbase are actively working on allowing plan members to hold up to 5% of their assets in cryptocurrency.
Meanwhile, business owners who sponsor their own retirement plan through a Solo 401(K) or SEP IRA can create their own plan that includes Bitcoin investments.
“As long as the plan documents allow, Bitcoin and other alternative asset investments are widespread in Solo 401(K) plans, which are not subject to ERISA requirements because there are no non-owner employees,” explains Bergman.
How to Open a Bitcoin IRA
You’ll need to pick where to open your Bitcoin IRA account once you’ve settled on a Bitcoin IRA. This entails finding a custodian who will host your self-directed IRA and allow you to trade cryptocurrencies. You’ll need your full legal name, address, Social Security number, and banking details, just like any other brokerage account.
Start looking for Bitcoin IRA custodians when you’re ready to open an account. Keep in mind that the account kinds, exchanges, and cryptocurrencies offered should all align with your objectives.
Make sure to compare any applicable costs, as they can quickly add up and jeopardize your ability to achieve your retirement goals. Here are seven of the most popular Bitcoin IRA companies to get you started:
Alto
Alto aspires to make alternative assets, such as cryptocurrencies, real estate, and early-stage businesses, more accessible to the general public. Alto’s CryptoIRA product is ideal for investors that are only interested in trading cryptocurrencies.
• Yes, IRAs are available.
• No solo 401(k) plans are available.
• Account Minimum Opening Balance: $0
• Cryptocurrencies supported include Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC), Stellar (XLM), and Zcash (ZEC), as well as Coinbase’s full suite of services.
• No startup fee, 1.5 percent crypto transaction fee, 1% annual custody fee, no additional exchange fees, $50 account closing fee
BitIRA
BitIRA bills itself as the most secure digital currency IRA in the world. While it does not provide prices on its website, it does provide a toll-free number to call if you have any queries before starting an account.
• Yes, IRAs are available.
• No solo 401(k) plans are available.
• $5,000 minimum opening account balance
• Available cryptocurrencies: Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (BSV), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC), Stellar (XLM), and Zcash (ZEC) (ZEC)
• Pricing is not disclosed: $50 account setup charge, $195 annual maintenance fee, and 0.05 percent per month storage fee. On trades, investors should request additional buy/sell costs.
IRA with Bitcoins
Bitcoin IRA has over 50,000 account holders and a user-friendly website with educational tools for potential investors. If you want to start an account, you’ll need to call to inquire about fees.
• Yes, IRAs are available.
• No solo 401(k) plans are available.
• $3,000 minimum opening account balance
• Available cryptocurrencies: Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC), Ripple (XRP), Stellar (XLM), and Zcash (ZEC) (ZEC)
• Open Pricing: Bitcoin IRA costs a one-time fee plus a custodian and security fee based on your original investment. Pricing must be requested by investors.
BlockMint
Because the information on BlockMint’s website is limited, investors should call for further information or submit a question via the company’s website before opening an account. Account holders, in particular, are assigned a dedicated account executive to assist them with all of their concerns and demands.
• Yes, IRAs are available.
• No solo 401(k) plans are available.
• A $10,000 minimum opening account balance is required.
• Available cryptocurrencies: Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC), and Ripple (XRP) (XRP)
• Pricing: A 15% transaction cost, a 2.5 percent purchase transaction fee, a 1 percent sale transaction fee, a $195 yearly maintenance fee, and a 0.50 percent monthly storage fee are all applied on your IRA amount.
Trusteeship
Equity Trust, one of the first self-directed IRA custodians (founded in 1983), offers a wide range of cryptocurrencies. Its cost structure, on the other hand, is a little complicated, so read it before you open an account.
• Yes, IRAs are available.
• Yes, there are solo 401(k) plans available.
• A $500 minimum balance is required to open an account.
• Available cryptocurrencies: Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin SV (SV), Ethereum (ETH), Ethereum Classic (ETC), Litecoin (LTC), Stellar (XLM), and Zcash (ZEC) (ZEC)
• Price: $50-75 account setup charge, annual fee based on account value, $20/month platform fee, 0.07 percent monthly fee dependent on account balance, 3.5 percent purchase fee, 1% sale fee
Financial Trust for IRAs
IRA Financial Trust is a low-cost Bitcoin IRA custodian that also allows users to purchase cryptocurrency on their preferred exchange. For IRAs, it has a flat-fee schedule and no minimum opening balances.
• Yes, IRAs are available.
• Yes, there are solo 401(k) plans available.
• Account Minimum Opening Balance: $0
• Cryptocurrencies Available: IRA Financial Trust acts as a custodian, and investors select their own cryptocurrency exchange to buy and sell crypto. It has a cooperation with the Gemini exchange and also provides checkbook IRA control for investors who wish to store crypto that isn’t available on the Gemini exchange. Gemini now has 47 different bitcoin products to choose from.
• Price: $75 quarterly cost for IRAs, $0 quarterly price for Solo 401(k), no broker or administration fees. Customers who use Gemini as their exchange benefit from the Active Trader fee schedule, which results in fees ranging from 0-0.35 percent each cryptocurrency transaction.
iTrustCapital
iTrustCapital, another low-cost platform, offers cryptocurrencies and digital gold assets through its self-directed IRAs. It’s also one of the only companies that allows inventors to transfer bitcoin assets directly to their IRAs without having to liquidate them first.
• Yes, IRAs are available.
• No solo 401(k) plans are available.
• $2,500 minimum opening account balance
• Available cryptocurrencies: Bitcoin (BTC), Bitcoin Cash (BCH), Cardano (ADA), Chainlink (LINK), Compound (COMP), Ethereum (ETH), EOS (EOS), Litecoin (LTC), Polkadot (DOT), Polygon (MATIC), Ripple (XRP), Stellar (XLM), Sushi (SUSHI), Uniswap (UNI), Yearn Finance (YFI)
• Price: $29.99/month account cost, 1% cryptocurrency trade fee, no additional storage expenses
Is a Bitcoin IRA Right for You?
Given the volatility of cryptocurrencies, opening a Bitcoin IRA is probably not the best solution for individuals nearing retirement. Those with a longer time horizon and a higher risk tolerance, on the other hand, may find that investing a modest portion of their retirement savings in alternative assets, such as Bitcoin or other cryptos, might provide upside and protect them from losses in their traditional holdings.
Bitcoin IRAs have more moving elements than traditional retirement plans. This means you’ll have to do a lot more study, not only when looking at cryptocurrencies, but also when choosing an IRA provider.
Make sure you understand the fees, as many are hidden on their websites. Finally, and perhaps most significantly, think about Bitcoin and other cryptocurrencies as a minor portion of your total retirement strategy, rather than the entire strategy.
