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Can You Put Bitcoin In An IRA?

· December 10, 2021 · 11:50 am

More people are putting crypto in their IRAs, resulting in the birth of Bitcoin IRAs. But are they a financially sound idea? Read this blog to find out.

Can You Put Bitcoin In An IRA?

 Everyone has a right to financial security, even after retiring from their nine-to-five job, which is what an Individual Retirement Account (IRA) is for. Opening one is an excellent way for people to save up or invest in something lucrative for their retirement. The best thing is that anyone can open an IRA regardless of the source of income.

Money isn’t the only thing an IRA can hold as account holders can opt to invest in a wide range of financial products from stocks to exchange-traded funds. However, one type of investment that has recently gained attention is cryptocurrency, namely Bitcoin. Given the market value of all cryptos just broke the USD$ 2 trillion mark, people investing in them in a hurry.

Thus, the industry refers to this setup as ‘Bitcoin IRA,’ this proves that you could put cryptos in an IRA. The question everyone should be asking is if it’s financially sound to do so.

Bitcoin IRA In A Nutshell

It’s worth noting that a Bitcoin IRA doesn’t necessarily contain Bitcoin. It’s an industry term that encompasses other cryptos like Ethereum, Tether, and Dogecoin.  At this point, Bitcoin has grown into a household name, hence the usage.

Experts categorize such accounts as self-directed IRAs, this is a variation of the traditional or Roth IRA that holds investments rather than actual money. Unlike conventional IRAs, these accounts often require the services of a trustee or custodian to handle the assets in them. It holds especially true for crypto, given their volatility and high risk.

As such, opening a Bitcoin IRA entails the extra step of finding a reputable service to manage the account. Even experts are still trying to comprehend how the crypto model works, so due diligence is essential. Looking into reviews like this Coin IRA review and others is a good start for anyone interested in investing in crypto.

Bitcoin IRAs can also take the form of other types of accounts, such as self-employed pension IRAs for independent contractors and Simple IRAs for small business owners. A 401k plan with crypto is also possible, though employers are less likely to offer such an option.

Weighing The Pros And Cons

Many people are bullish about holding crypto assets in their IRAs. In a survey of more than 300 long-time clients and Bitcoin IRA holders, 42% of them believe that the price of Bitcoin will go up by USD$ 15,000 or more—and they were correct. From USD$ 9,118 in June 2020, when the survey results were published, Bitcoin’s value went up to nearly USD$ 28,985 by the yearend.

Coupled with the doubling of Bitcoin’s value this year which is over USD$ 66,000 as of this writing, it’s no wonder investing in crypto is all the rage today. Bitcoin IRAs may as well hold a thriving gold mine, which is a perfect reason to be excited. However, as with any investment, it pays to take a closer look into this rabbit hole before jumping in.

Here are several advantages of having crypto as your IRA.

  • Diversification: One crucial rule in investing is to never put all your money in one type of investment. Crypto adds to investors’ portfolios and mitigating losses from other fronts, such as falling prices of stocks and other assets.
  • Growing Professionalism: One of the reasons for the recent crypto boom is how more financial professionals are getting involved in the market. This movement will put them in a better position to manage the industry, thereby reducing its volatility over time.
  • Tax Advantages: Regardless of the type, IRAs are eligible for tax deductions, deferrals, or even credits. As such, crypto assets won’t be taxed if within an IRA, unlike standalone investments, or even benefit from compounding growth.

Naturally, this setup comes with several disadvantages.

  • Decentralization: Cryptos were introduced as a way for investors to have more control over their investments, hence the decentralized model. However, the lack of a regulating body means people are less likely to get their money back if the company falters.
  • Hectic Price Swings: Despite more professionals entering, volatility will still hound the crypto market. It’s not unusual for the price of crypto to drop by tens of thousands within a year, even hours. Upcoming retirees will be in a pinch if such a scenario happens.
  • Fees Included: Unlike conventional IRAs, Bitcoin IRAs generally come with additional fees. The payment for a trustee or custodian’s management services might offset the tax benefits IRAs bring.

The Verdict

Overall, having crypto in your IRA isn’t an entirely bad idea. The recent growth shows crypto’s potential that’ll surely benefit retirees for the rest of their lives. Given issues such as its volatility, you may want to consider having both a traditional and Bitcoin IRA to mitigate your losses.

 

 

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