Crypto IRAs

Crypto and Bitcoin IRAs are higher-risk than traditional investment options such as mutual funds, stocks and bonds, but have the potential for higher returns as well. They follow the same rules as a regular IRA, meaning you will be responsible for early withdrawal fees if you opt to cash out before the age of 59 1/2.

Terry Turner, writer and researcher for RetireGuide
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APA Turner, T. (2022, May 6). Crypto IRAs. RetireGuide.com. Retrieved May 25, 2022, from https://www.retireguide.com/retirement-planning/investing/accounts/ira/crypto/

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Chicago Turner, Terry. "Crypto IRAs." RetireGuide.com. Last modified May 6, 2022. https://www.retireguide.com/retirement-planning/investing/accounts/ira/crypto/.

Perhaps the most well-known cryptocurrency is Bitcoin. It was the first to be established and is also the one for which blockchain technology — essentially a decentralized, encrypted digital ledger — was invented. Since being made available to the public in 2009, it has seen a meteoric rise in value. According to NASDAQ, one Bitcoin was valued at $4,000 in March 2019 and had risen to nearly $40,000 in March 2022, equaling a 900% increase in five years.

Though Bitcoin continues to rise in value, the virtual currency has also experienced wild fluctuations. The valuation has been so volatile that only four months after El Salvador became the first country to recognize it as legal tender, the International Monetary Fund urged the Latin American nation to reverse its decision.

That’s not stopping some investors, however, from converting their entire retirement portfolios to self-directed and crypto IRAs. The move is risky, yet many Bitcoin buyers see it as a new way to diversify their portfolios, hoping it’ll become stronger than the price of gold and the dollar by the time they reach retirement. But is it the right decision for you?

What Are Crypto and Bitcoin IRAs?

The IRS defines virtual currencies as “a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (‘real currency’), that functions as a unit of account, a store of value and a medium of exchange.”

A variety of cryptocurrencies exist on the market today, including Ethereum, Litecoin, Cardano and, of course, Bitcoin.

For federal tax purposes, cryptocurrencies are treated as property. But, in terms of retirement investments, they are given the same tax breaks as traditional investments. That means any potential growth can count toward tax-free or tax-deferred savings, depending on the type of IRA you hold.

How Does a Bitcoin IRA Work?

Bitcoin IRAs work similarly to regular IRAs, except you’re investing in what the IRS specifically calls convertible virtual currencies instead of mutual fund shares.

There are essentially two types of IRAs that can apply: self-directed IRAs (SDIRAs) or crypto-specific IRAs. The difference is who holds the “key” — you, in the former, or a third-party known as a custodian, in the latter.

A self-directed IRA is a type of IRA that allows holders to invest in a variety of alternative asset classes that are not available for regular IRA (traditional IRA, Roth IRA) holders. Cryptocurrency, like Bitcoin, is one such asset class available ‌to diversify your retirement portfolio.

As with any SDIRA, this is an option best suited for someone who wants to put in the effort to set it up and make it successful. Remember that custodians don’t give you any financial advice or conduct extensive due diligence on your behalf. Since it’s self-directed, you take responsibility for your own choices.

Crypto IRAs, on the other hand, allow investors to choose from a growing list of providers who act as fund custodians of your crypto wallet.

Pros and Cons of Crypto IRAs
Pros
  • Tax-free or tax-deferred savings
  • No yearly investment cap
  • Broader portfolio diversification
  • Potentially higher returns
  • No penalties or fees for transferring accounts
Cons
  • Annual fees
  • Withdrawal fee
  • Higher risk because of volatility
  • Exchange limitations
  • Complexity/requires more work
  • Capital losses

How To Prepare for a Bitcoin IRA

When getting ready to open a cryptocurrency IRA, there are a few steps that will help make the process as smooth — and successful — as possible:
  • Make sure you have your full legal name, address, Social Security number and banking information available.
  • Research which type of cryptocurrency is best for you. Bitcoin is the most well-known, but others may perform better over the long term.
  • Determine how you want to fund your new account. This can include making an annual eligible contribution, transferring funds from an existing IRA or rolling over funds from a qualified retirement account.
  • Research cryptocurrency IRA custodians and compare relevant fees.
  • Select where you want to open the account and complete any necessary paperwork.

Best Crypto IRA Companies in 2022

Below is a sampling of some of the most popular cryptocurrency and self-directed IRA provider companies on the market today.

Bitcoin IRA
ProsCons
Customer serviceHigh setup fee (5.99% of the initial deposit)
24/7 real-time tradingHigh maintenance fees
Easy setup and trading
Secure offline storage
Mobile app available
Insured up to $700 million
Supports nine types of cryptocurrency
iTrustCapital
ProsCons
Low account and trading feesNo financial advisors on staff
Low minimum investment ($2,500)No mobile app
24/7 real-time trading
Insured up to $370 million
Supports 28 cryptocurrencies
Coin IRA
ProsCons
Low feesHigh account minimum ($20,000)
Multiple storage optionsPhone confirmation needed for trades
Dedicated cryptocurrency advisorsNo mobile app
Multiple secure wallet options
Insured up to $100 million
Supports up to eight cryptocurrencies
BitIRA
ProsCons
Secure offline storage and transactionsMust open account with digital currency specialist
Full insurance coverageLong account processing period
Lower minimum investment ($5,000)No mobile app
Licensed trust custodians
Low setup and maintenance fees
Supports nine cryptocurrencies
Equity Trust
ProsCons
45 years’ experience in self-directed IRAsHigh administration fees
Supports traditional and alternative investmentsRequires representative to open accounts
No transaction feesNo mobile app
Secure offline storage and transactions
Access to SDIRA specialists
Full insurance coverage
Supports up to eight cryptocurrencies
Last Modified: May 6, 2022

3 Cited Research Articles

  1. BBC. (2022, January 26). IMF urges El Salvador to remove Bitcoin as legal tender. Retrieved from https://www.bbc.com/news/world-latin-america-60135552
  2. NASDAQ. (2022). Bitcoin (BTC). Retrieved from https://www.nasdaq.com/market-activity/cryptocurrency/btc
  3. U.S. Internal Revenue Service. (2022, March 18). Frequently Asked Questions on Virtual Currency Transactions. Retrieved from https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions