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.
- Written by Terry Turner
Senior Financial Writer and Financial Wellness Facilitator
Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).Read More
- Edited BySavannah Pittle
Senior Financial Editor
Savannah Pittle is a professional writer and content editor with over 16 years of professional experience across multiple industries. She has ghostwritten for entrepreneurs and industry leaders and been published in mediums such as The Huffington Post, Southern Living and Interior Appeal Magazine.Read More
- Financially Reviewed ByEbony J. Howard, CPA
Ebony J. Howard, CPA
Credentialed Tax Expert at Intuit
Ebony J. Howard is a certified public accountant and freelance consultant with a background in accounting, personal finance, and income tax planning and preparation. She specializes in analyzing financial information in the health care, banking and real estate sectors.Read More
- Published: March 27, 2022
- Updated: May 23, 2023
- 5 min read time
- This page features 3 Cited Research Articles
- Edited By
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.
- Tax-free or tax-deferred savings
- No yearly investment cap
- Broader portfolio diversification
- Potentially higher returns
- No penalties or fees for transferring accounts
- Annual fees
- Withdrawal fee
- Higher risk because of volatility
- Exchange limitations
- Complexity/requires more work
- Capital losses
How To Prepare for a Bitcoin IRA
- 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 2023
Below is a sampling of some of the most popular cryptocurrency and self-directed IRA provider companies on the market today.
|Customer service||High setup fee (5.99% of the initial deposit)|
|24/7 real-time trading||High maintenance fees|
|Easy setup and trading|
|Secure offline storage|
|Mobile app available|
|Insured up to $700 million|
|Supports 60+ types of cryptocurrency|
|Low account and trading fees||No 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|
|Low fees||High account minimum ($20,000)|
|Multiple storage options||Phone confirmation needed for trades|
|Dedicated cryptocurrency advisors||No mobile app|
|Multiple secure wallet options|
|Insured up to $100 million|
|Supports up to eight cryptocurrencies|
|Secure offline storage and transactions||Must open account with digital currency specialist|
|Full insurance coverage||Long account processing period|
|Lower minimum investment ($5,000)||No mobile app|
|Licensed trust custodians|
|Low setup and maintenance fees|
|Supports nine cryptocurrencies|
|45 years’ experience in self-directed IRAs||High administration fees|
|Supports traditional and alternative investments||Requires representative to open accounts|
|No transaction fees||No mobile app|
|Secure offline storage and transactions|
|Access to SDIRA specialists|
|Full insurance coverage|
|Supports up to eight cryptocurrencies|
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3 Cited Research Articles
- 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
- NASDAQ. (2022). Bitcoin (BTC). Retrieved from https://www.nasdaq.com/market-activity/cryptocurrency/btc
- 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
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