Can Bitcoin Be Held In An IRA?

can bitcoin be held in an ira account retirement btc holdings

Bitcoin is one cryptocurrency that makes it to the news headlines every day. And considering its phenomenal rise in price from nothing to almost 32,000 USD within a decade, many investors may likely buy-in. You may wonder how this is possible for those planning their retirement accounts with an interest in crypto. 

You can actually invest in the asset via a very familiar route – the IRA (individual retirement account). So if you are wondering, “can bitcoin be held in an IRA?” sure, bitcoin investments suit IRAs. However, like all investment strategies, there are benefits and drawbacks. 

What’s A Bitcoin IRA? 

This is an IRA that contains bitcoin in its portfolio. The account also allows you to hold other cryptocurrencies such as Litecoin and Ethereum. It is worthy to note that if you already own a regular individual retirement account that contains mutual funds, ETFs, bonds, or stocks, you cannot fund it with bitcoin. 

What you will do is to open a self-directed type of IRA because the IRS regards cryptocurrencies as off-limits for regular IRAs. Also, a self-directed account has loose IRS rules that allow investors to hold property and alternative investments. 

How The Bitcoin IRA Works 

It works like the regular IRAs that you can open with your preferred amount. However, the IRS has an annual contribution limit for such accounts. For the year 2021, you can contribute only 6000 USD each year or 7000 USD per year if you are 50 years and older. All gains, returns, or income that the investment generates will be tax-free. 

Furthermore, you can open the account as a traditional variant. In this case, your contribution is tax- deductible. Also, when funds are withdrawn, they are taxed. Or you can open it as a Roth IRA where there are no tax breaks on contributions. However, the distribution is tax-free. You can visit this website to know more about a Roth IRA. 

ira bitcoin individual retirement account btc cryptocurrency

How To Fund Your IRA With Bitcoin 

Since the bitcoin IRA is self-directed, it operates in a slightly different way. The account owner manages it directly without external interference from a money manager or financial advisor. Perhaps, this is the reason why regular brokerage, investment apps, or banks do not handle them. 

You can only access self-directed investment accounts from firms that offer the kind of asset you want to invest in. Therefore, investing in cryptocurrency requires looking for a custodian that deals in and holds it. The custodians will assist you with the application process. After that, you can fund the account by rolling over funds from your previous investment account; another account that is tax-advantaged; or use new funds. 

It may be difficult for investors to find accurate information on which firm to approach for bitcoin investment because this is a growing aspect of investment. However, no matter the custodian you consider, ensure you check them out thoroughly before investing. You can visit the website or contact customer service to confirm that the firm is real. 

You can also compare fee structures of different firms, including the way they operate. Ensure you find out how they will store your asset, their security measures, and procedures. No one wants their account holdings to be at the reach of hackers. 

Benefits Of Investing In Bitcoin IRA 

The following are the benefits of investing in a cryptocurrency investment account: 

1. Portfolio Diversification 

This coin is a huge diversifier for financial assets. It is a good means of holding a property that does not move just like how other investments move. It can also serve as a hedge during periods of inflation since the value of the dollar against some currencies has reduced. 

2. A Big Potential For Gains 

Although bitcoin dropped recently, the returns still outpace the other markets. Also, if you are not satisfied with the history of the coin, you should look at the angle where a limited amount (only twenty-one million coins) can be mined ever. This shows a significant future promise. 

3. A Position For Holding The Asset On A Long-Term Basis 

Although the price of bitcoin fluctuates, it has been trending since it started in 2009. Considering its volatility, investors should regard the coin because they can hold it for a long time. This makes it suitable for accounts that you do not plan to withdraw funds from until you retire. 

4. Tax Savings 

Bitcoin is taxed like an investment. This means that it is subject to tax on capital gains when sold for profit. But the gain is not kept in the IRA because it is shielded from tax just like other transactions within any IRA. 

If you operate a traditional account, you will pay tax when withdrawing funds. But if it is a Roth account, you won’t pay tax as long as you obey all the rules. You can check out https://time.com/nextadvisor/investing/cryptocurrency/cryptocurrency-tax-guide/ to learn more about crypto and tax. 

Crypto Conclusion 

If you believe in the future of cryptocurrency and want tax gains along with your savings, bitcoin IRA may be the opportunity you have been waiting for. The account is easy to operate since it is similar to an account that is familiar. 

However, compared to the other individual retirement accounts, a bitcoin IRA has higher account minimums and fees. Also, note that you can hold the coin by opening accounts with cryptocurrency trading platforms. But if you still want to open the BTC IRA account, ensure you choose your custodian carefully. And commit only an amount of coin that you will not regret losing while thinking about the long-term gains.

Bootstrap Business Blog Newest Posts From Mike Schiemer, Partners, & Blog Outreach Services