What Is a Bitcoin IRA? How to Invest in Bitcoin in a Self-Directed IRA

Bitcoin's price has skyrocketed over the past few years, but there are some substantial risks to be aware of before opening a Bitcoin IRA.

Bitcoin’s price has increased substantially over the past few years. In June 2020, Bitcoin’s price was about $9,600. Today, its price is about $60,000 per token, showing an increase of about 575% in four years.

To put that performance in perspective, the S&P 500 Index increased by about 72% for the same period.

“When you look at it [Bitcoin’s performance] over a longer period of time, the price appreciation really blows other assets out of the water,” said John Haar, managing director of Swan, a Bitcoin IRA platform.

Past returns and price increases are no guarantee of future returns. However, such an impressive price increase can pique people’s interests, so it’s no surprise that more people are considering investing in Bitcoin.

“Investors are constantly searching for a way to defer taxes on assets they believe have significant upside potential,” said Ian Weiner, a certified financial planner (CFP) and lead planner with Bespoke Wealth Solutions. “With Bitcoin’s meteoric yet volatile growth in the last decade or so, it’s no surprise that many investors are looking for ‘loopholes’.”

Particularly for those looking to maximize their retirement savings, Bitcoin can seem like a tempting alternative to traditional stocks and bonds.

Traditional and Roth IRAs don’t allow investors to invest in alternative assets like precious metals or cryptocurrency; you can only hold stocks, bonds, mutual funds or exchange-traded funds (ETFs). However, by opening a self-directed IRA, a different type of account that requires a custodian, you can invest in cryptocurrency or other assets within a retirement account.

The same rules apply to Bitcoin IRAs that apply to traditional or Roth IRAs; for example, they have the same annual contribution limits, and they’re subject to required minimum distribution rules.

How to buy Bitcoin in a self-directed IRA

Opening a Bitcoin IRA and investing in Bitcoin is relatively easy, but it does require a little more work than a traditional or Roth IRA. To get started, follow these steps:

Choose a Bitcoin IRA provider. There are several companies that offer Bitcoin IRAs. Compare their fees, services and customer reviews to find the best provider for you.

Open a self-directed IRA with your chosen provider. You’ll need to provide your personal information, including your Social Security number and date of birth. You’ll also need to fund your IRA with a minimum deposit, which varies by provider.

Direct your IRA custodian to purchase Bitcoin. Once your IRA is funded, you can instruct your custodian to purchase Bitcoin on your behalf. You’ll need to specify the amount of Bitcoin you want to buy and the price at which you want to buy it.

Risks with investing in bitcoin IRAs

Although Bitcoin’s price has skyrocketed over the past few years, there are some substantial risks to be aware of before opening a Bitcoin IRA:

Fees

Self-directed IRAs, including Bitcoin IRAs, require additional documentation, and you need a custodian to handle your holdings for you. As a result, they tend to be more expensive than traditional or Roth IRAs.

“Fees vary [by provider], but there tends to be many,” cautioned Weiner. “Transaction fees of 1% to 2% are common, platform fees of $20 to $30 per month, and some custodians charge a custodian fee of 1% and others charge security fees on top of everything else. All in, these are not inexpensive transactions.”

Below are the fee structures of three major providers:

Bitcoin IRA: account maintenance fee of $300 per year, transaction fee of 1% to 2.5% (minimum $50) and wire fee of $50

iTrustCapital: account maintenance fee of $250 per year, transaction fee of 1% (minimum $35) and ACH transfer fee of $10

Unchained IRA: account maintenance fee of $150 per year, transaction fee of 0.75% (minimum $75) and wire fee of $50

Volatility

Although there is the risk of losing money with any investment, Bitcoin’s price can be particularly volatile. For example, in November 2021, its price reached $65,000. Within one year, its price had plummeted to $15,500 in November 2022. If you’re nearing your retirement age, such volatility could put your future at risk.

Security

Because Bitcoin is a digital token, there is the risk of security breaches and hacks costing you money. In fact, the Commodity Futures Trading Commission issued a warning about self-directed IRAs investing in digital currency, cautioning consumers that their digital wallets could be hacked, and,

The above is the detailed content of What Is a Bitcoin IRA? How to Invest in Bitcoin in a Self-Directed IRA. For more information, please follow other related articles on the PHP Chinese website!