Cryptocurrency continues to be of interest to many investors, after all, it comes with potentially higher returns than other investment vehicles and helps diversify your portfolio. Now, investors have an option to add Bitcoin and other cryptocurrency to their IRA to help save for retirement; but how do you buy Bitcoin with an IRA?
In this article we’ll explore the pros and cons of Bitcoin IRAs and provide the best options to tap into Bitcoin as a long-term investment strategy within your IRA.
Is this volatile investment worth the risking your retirement? Read on to find out if it makes sense for your personal retirement journey.
Quicklook: Best Crypto IRA Platforms
- Bitcoin IRA — Best for Easy Setup
- Bit IRA — Best for Security
- Coin IRA — Best for Investor Education
- iTrust Capital — Best for Lower Costs
- IRA Financial Trust — Best for Audit Protection
Table of Contents
- Best Crypto IRA Platforms
- What Is Bitcoin?
- What Is a Bitcoin IRA?
- How Does a Bitcoin IRA Work?
- 5 Steps for Buying Bitcoin Through an IRA
- Advantages of Investing in Bitcoin Through an IRA
- Disadvantages of Investing in Bitcoin Through an IRA
5 Best Crypto IRA Platforms
Consider the top five crypto IRA platforms when you’re ready to add cryptocurrency to your retirement savings plan. Each has their own set of features to ensure you get the most out of your retirement account.
As the pioneer of cryptocurrency IRA’s, Bitcoin IRA is a full-service platform that is trusted by over 100,000 users. Their accounts are easy to set up and they have a team of specialists to help clients roll over existing accounts.
They also provide educational materials to help answer any questions you may have before opening an account. Additionally, your assets are insured through BitGo Trust for up to $100 million in protection.
Minimum Account Balance:
- Standard account: $3,000
- Saver IRA: $100 initial deposit with $100 recurring investment monthly, linked to bank account
Pricing / Fees: Bitcoin IRA does not list their pricing and fees on their site. Investors have indicated the following fees should be expected:
- One time setup fee
- Annual custodial fee
- Asset conversion fee
- Buy fee
- Sell platform fee
- Bitcoin Cash
- Stellar lumens
- Digital gold
- BitGo’s industry leading wallet
- $100 million custody insurance
BitIRA markets itself as being the most secure cryptocurrency IRA, and it has successfully backed this title up since its establishment in 2017. It offers the highest levels of security not only for storage, but for transactions as well.
Add in unlimited insurance coverage and you have a crypto IRA that can’t be beat. To start, you will need to work with a digital currency specialist to help you open an account.
Minimum Account Balance: $5,000
Pricing / Fees: BitIRA does not list their fees and pricing on their website. Investors have indicated the following should be expected:
- Setup fee
- Annual account maintenance fee
- Monthly secure offline storage fee
- Bitcoin SV
- Bitcoin Cash
- Ethereum Classic
- Stellar Lumens
- Multi-encryption encoding for all transactions
- Offline storage for digital assets
Coin IRA is another company founded in 2017. They offer investors a fantastic user experience and help them get started with their free reference book “Ultimate Guide to Cryptocurrency Investing.”
This downloadable resource educates investors on the benefits of cryptocurrency, the details about a cryptocurrency IRA, and how they can convert their existing retirement accounts to cryptocurrency IRAs.
They have cryptocurrency consultants standing by to help answer questions and set up accounts.
Minimum Account Balance: $20,000
Pricing / Fees: Coin IRA does not list their fees and pricing on their website. Investors have indicated the following should be expected:
- Setup fee
- Annual maintenance fee
- Monthly storage fee
- Ethereum Classic
- Low fees
- Specialized IRA consultants
iTrustCapital is one of the best choices for investors looking to start a cryptocurrency IRA without an exorbitant minimum account balance. With a low minimum investment to get you started, and low account and trading fees, iTrustCapital makes it easy for investors of all skills.
Anyone can get started investing in cryptocurrency on their platform. Unlike other companies who charge upwards of 15% per transaction, iTrustCapital charges only 1%, helping you get the most out of your retirement savings.
Minimum Account Balance: $1,000
Pricing / Fees:
- $29.95 per month account fee
- 1% crypto trade fee
- No storage fees, broker fees, initial purchase fees
- Bitcoin Cash
- Yearn Finance
- Lowest cost
- Low minimum investment
IRA Financial Trust
IRA Financial Trust is an account custodian. It allows their users to buy cryptocurrency by selecting any exchange of their choosing, but it recommends Gemini exchange.
The company was founded by tax attorneys. It has helped thousands of clients set up self-directed retirement accounts. Because of the complexities of self directed IRA accounts, including the rules and restrictions from the IRS. IRA Financial Trust has the best audit protection and stands by clients if they are ever subjected to an audit.
Minimum Account Balance: $0
Pricing / Fees:
- $75 quarterly IRA fee
- Active trader fee
- Transaction fee
Cryptocurrencies Offered: As a custodian, IRA Financial Trust allows investors to choose their own exchange to buy and sell cryptocurrencies, although it is partnered with and recommends Gemini exchange. This exchange offers 47 different cryptocurrency options.
- Audit protection
- No minimum account balance
What Is Bitcoin?
You can then send Bitcoins, or portions of them, to merchants or other people in exchange for payment. But, why Bitcoin?
Many people find that Bitcoins are a great way to purchase merchandise anonymously and make international payments. Since Bitcoins are not tied to any specific country, or their regulations, it makes international payments quick and easy.
Small business owners are attracted to Bitcoins because there are no credit card processing fees. And of course, investors like them as an investment opportunity in hopes that their price will increase, thus increasing their wealth.
What Is a Bitcoin IRA?
We know that an IRA is a retirement account that holds bonds, stocks, mutual funds, and/or ETFs. A Bitcoin IRA is also a retirement fund, however this retirement account includes Bitcoin, and other cryptocurrencies, within it.
If you currently have a pre-existing IRA, you will need to set up another to invest in Bitcoin. The IRS deems cryptocurrency a type of property — which is not allowed within regular IRAs.
Instead, you will need to set up a self-directed IRA, which has looser rules than regular IRAs. They allow you to hold property, like cryptocurrencies.
How Does a Bitcoin IRA Work?
There are some similarities and differences between Bitcoin IRAs and traditional IRAs. The most important one to note is that they all have annual contribution limits outlined by the IRS.
Each year, as of 2021, you can only contribute $6,000 annually. If you are 50 or older the maximum contribution is $7,000. You are also able to choose between a traditional IRA, where contributions are tax-deductible and your funds are taxed upon withdrawal, and a Roth IRA, where funds are contributed with no tax break but withdrawals are tax-free.
But, Bitcoin IRAs are a little more complicated than regular IRAs. Typically when setting up an IRA you have one point of contact, a brokerage firm, where you set up the IRA and buy and sell securities.
With a Bitcoin IRA you will need to do a little more work. You’ll need these three components:
- Custodian: Holds your IRA. Responsible for ensuring your account meets regulations by the IRS. Responsible for its safekeeping. Typically a bank or financial institution.
- Exchange: A crypto exchange that manages your trades, similar to the stock market. This is where digital currency is traded.
- Secure Storage: Stores and protects cryptocurrency. Many Bitcoin IRA providers have proprietary storage methods to keep digital coins secure.
5 Steps for Buying Bitcoin Through an IRA
Ready to buy bitcoin through an IRA? You’ll need to follow these steps to properly set up an account and to start adding cryptocurrency to your retirement savings.
Step 1: Set Up a Self Directed IRA (SDIRA)
First, you will want to find the best self-directed IRA for cryptocurrency. Explore the five options below to see which has the features that are most appealing to you.
Step 2: Sign Up and Register an LLC (Checkbook IRA)
You will need to set up a limited liability company to hold cryptocurrency through a retirement account. When you register an LLC, it will be 100% owned by the IRA.
Any income and/or expenses will flow through the IRA’s LLC, as required by the IRS.
Step 3: Open a Business Checking Account Through the LLC
Once you have set up the LLC, you will need to set up a checkbook to fund transactions. The sole purpose of the checking account is to wire funds or write checks to invest in the digital assets.
Step 4: Register for a Digital Wallet
As mentioned above, you will need to have a digital wallet to securely store your cryptocurrencies. You will need to set up an account on the cryptocurrency exchange with your IRA LLC information (name and tax number).
This allows your LLC to trade cryptocurrencies and have them stored in a secure location.
Step 5: Start Purchasing!
Last but not least, you are able to begin purchasing cryptocurrency for your IRA! You can purchase Bitcoin through your IRA LLC, through a broker, or even invest in a fund.
Advantages of Investing in Bitcoin Through an IRA
Adding Bitcoin through an IRA comes with many benefits for investors. Consider the following advantages:
- Diversification: Diversify your portfolio and retirement savings with an investment vehicle that is not the traditional stocks or bonds.
- Growth potential: Cryptocurrencies currently have major long term growth potential, and they continue to increase in popularity. While the risk of adding Bitcoin to your IRA portfolio might seem high, which we’ll explore in the next section, the return could be well worth it.
- Tax advantages: Doing the book keeping for Bitcoin can become a nightmare. After all, you owe taxes any time you sell cryptocurrency for a profit. When you invest in a tax-advantaged IRA, you aren’t taxed while the securities are held within your account.
Disadvantages of Investing in Bitcoin Through an IRA
We know that with any reward comes the risk. Investing in Bitcoins through an IRA comes with these disadvantages that you should be aware about before investing:
- Volatility: Cryptocurrencies tend to be riskier than other investment vehicles. We often see high price volatility, meaning it is riskier and might not be as ideal of an investment for retirement planning. This is especially true if you are close to retirement.
- Popularity: Is Bitcoin and cryptocurrency all “hype” or will it stand the test of time? No one knows if it will be sustainable, which presents a risk in itself.
- Fees: When you invest in a self-directed IRA, it comes with added fees. Everything from account management fees to trading fees. The cost is something to be aware of before opening an account.
- Taxes: While we mentioned taxes as an advantage above, we’d be remiss if we didn’t mention the potential for capital losses. While traditionally any capital losses would come with a silver lining, allowing you to deduct the loss or offset gains from other investments. Cryptocurrency IRAs do not have this this tax advantage.
Should You Buy Bitcoin Through Your IRA?
Understanding the risk and potential rewards will help you determine if you should buy Bitcoin through your IRA. If you are an investor that is nearing retirement, due to the volatility of cryptocurrencies, it is not recommended for you to invest your retirement savings here.
However, if you are younger and have a greater risk tolerance, investing a portion of your retirement savings into a Bitcoin IRA or other cryptocurrencies could help improve your long-term wealth. As with all types of investing, it is important to understand the ins and outs before you hand over your hard earned money.
If you are unsure of how to add a Bitcoin IRA to your retirement portfolio, reach out to your financial advisor for assistance. They will help you understand the risk, fees, and potential rewards.
Frequently Asked Questions
Yes. You can hold crypto in a self-directed IRA. This is different from a regular IRA that trades stock and bonds.
Bitcoin, along with other cryptocurrencies, is very volatile. It is not uncommon for there to be large swings over short periods of time. This makes trading Bitcoin a risky option for investors.
Bitcoin, and cryptocurrency in general, is considered a volatile investment. It has the potential to have extreme profits, but its volatility makes it a difficult investment.
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