Did You Know You Can Buy Cryptocurrency in an IRA?

In order to be financially comfortable in the later parts of your life, it is essential that you begin your retirement savings now. Self-directed Individual Retirement Accounts (IRAs) make for a not-so-well-known method to invest in cryptocurrencies. According to Bitcoin IRA, which claims to have processed $400 million in client retirement contributions in the digital currency area as of March 2020, it is one of the earliest providers in this space.

We’ll examine the advantages and disadvantages of making an investment in a Bitcoin IRA. Let us first analyze a Bitcoin IRA to see how it differs from typical retirement plans and how to buy crypto in an IRA.

Image Credits: Busines Insider

What is a Bitcoin IRA?

The Internal Revenue Service (IRS) does not have a dedicated account for cryptocurrency transactions. As a result, when investors speak of a “Bitcoin IRA,” they’re referring to an IRA that holds Bitcoin and other digital currencies. See comprehensive article on what is a bitcoin IRA.

Bitcoin and other cryptocurrencies held in retirement portfolios are treated as property by the IRS, which means they are subject to the same taxation as stocks and bonds. This change was made in 2014. A custodian is needed for IRA participants who want to incorporate digital tokens into their retirement plans.

Many investors are frustrated because it is difficult to locate a custodian who will accept Bitcoin as an IRA investment. Fortunately, self-directed IRAs (SDIRAs) are becoming more common, allowing for the inclusion of nontraditional assets like cryptocurrency in IRAs. A popular company that offers this service is BitIRA for crypto in your IRA.

Image Credit: Bitcoin Market Journal

How does a Bitcoin IRA Work?

Depending on who you choose to set up your self-directed IRA with, the process may slightly differ. As a rule, custodians oversee self-directed IRAs. It is the custodian’s job to make sure that your self-directed IRA is compliant with the IRS rules and regulations and safeguard your assets. 

Additionally, you’ll need a means of purchasing cryptocurrencies. To buy cryptocurrency, some custodians use their own methods or partnerships. Some people may let you use an exchange of your preference.

Last but not least, you’ll want a safe place to keep your bitcoins. A wallet is required for storing cryptocurrency. Among crypto wallet alternatives, there are hot wallets, which are connected to the internet, and cold wallets, which are disconnected from the internet. Many custodians offer secure storage solutions for your self-directed IRA’s crypto purchases, which must be held by the IRA and not you.

In certain circumstances, the same company manages all three of these components. Sometimes, it’s necessary to combine the services of multiple companies in order to make a bitcoin IRA investment.

Types of Individual Retirement Accounts

Traditional and Roth IRAs are the two main types of Individual Retirement Accounts (IRAs) available to those looking to open their own retirement accounts. In order to contribute to an IRA, you or your spouse must have earned income. As of 2021 and 2022, they have contribution limitations of $6,000, which rises to $7,000 if you are 50 or older. Traditional, Roth, and self-directed IRAs, all have the same contribution limits.

Traditional IRAs may allow you to deduct some or all of your contributions from your taxable income. The account’s earnings are tax-free. However, distributions may be subject to regular income tax, and early withdrawals may incur additional fees and penalties.

The number of contributions to a traditional IRA that can be deducted from your taxable income may be limited depending on your income and tax filing status. You don’t get a tax deduction with a Roth IRA. Earnings are tax-deferred, just like in a typical IRA. In most situations, withdrawals from a Roth IRA after the age of 59 1/2 are tax and penalty-free if you’ve kept it untouched for at least five years. If you take money out of these accounts early, you may be subject to taxes.

Your ability to contribute to a Roth IRA may be restricted if your financial situation changes. Your retirement accounts, as well as your modified adjusted gross income and tax filing status, can have an impact on them.

For a self-directed bitcoin or other cryptos IRA, deciding on the best IRA to use depends on your tax status and long-term plans. A Roth IRA may be a better option for those who anticipate substantial gains and higher tax rates in the future. Traditional IRAs may be preferable for those who anticipate paying a lower tax rate after retirement.

SEP IRAs and SIMPLE IRAs are two types of IRAs available to small businesses. For the most part, you can’t set these up for yourself unless you are self-employed or the owner of a small business. 

Image Credits: American IRA

How to Purchase Bitcoin with an IRA

Buying a bitcoin in an Individual Retirement Account (IRA) depends on the specifics of your financial situation. However, here is a general rule of thumb to follow.

  • Make a list of possible self-directed IRAs.
  • Investigate your choices and select the most appropriate one.
  • Set up a self-directed Individual Retirement Account with that company.
  • Your self-directed IRA can be used to acquire bitcoin (or add rollover funds from another IRA).
  • Use the technique that your self-directed IRA recommends to buy bitcoin.
  • The self-directed IRA custodian should have the bitcoin stored in accordance with their instructions.

Always keep an eye on the costs associated with purchasing Bitcoin via self-directed IRA accounts. In particular, compare the costs of buying bitcoin in an IRA vs buying bitcoin outside of an IRA. Avoid forgetting to include long-term management costs.

What are the Benefits of Using a Bitcoin IRA?

With bitcoin IRAs, there are numerous advantages.

Diversification of  portfolio

Bitcoin is a wonderful diversifier for your financial holdings. Holding some bitcoin may be a good way to own something that doesn’t move exactly how the rest of your investments move. If you’re worried about inflation, this could be a good way to protect yourself against it.  

Enormous gains 

Bitcoin’s price rises and falls, but its gains outstrip those of other markets. The fact that only a finite quantity of bitcoins (21 million) will ever be mined adds even more weight to the case for bitcoin’s future success.

A long-term investment strategy

While the price of bitcoin changes from time to time, it has consistently risen since its launch in 2009. Individual investors should hold it for the long term due to its high level of volatility. That means it could be a suitable fit for a retirement account that you don’t intend to use until then.

Tax savings

You must pay capital gains tax when you sell Bitcoin for a profit to the IRS. However, this is not the case if the asset is kept in an individual retirement account. This profit is exempt from taxes, as are all IRA transactions. On the other hand, in a Roth IRA, there are no taxes to be paid when you withdraw funds.

Image Source: Buy Bitcoin Worldwide

Cons of Bitcoin IRA

Investing involves a certain amount of risk. There are risks attached to bitcoin IRAs too.


It is because of Bitcoin’s volatile nature that many people regard this asset to be a high-risk investment. As a result, volatility might be a major downside for those with limited risk tolerance. If your retirement funds lose more than 20% in a single day, you may not be able to bear it any longer.


The expenses associated with investing in Bitcoin IRAs are perhaps the most certain disadvantage. Setting up a self-directed IRA can cost upwards of $3,000(this varies from provider to provider). Account maintenance and custody costs may be required in addition to the initial account establishment fees.

Even if trades are executed on your behalf, you will still be responsible for fees in excess of one percent of every transaction. Additionally, if you decide to cancel your SDIRA and take your money out early, you’ll have to pay additional costs for doing so. The Bitcoin IRAS tax advantages and profits could be chipped away by the final fees and taxes.


What is Cold Storage for cryptocurrencies?

‘Cold storage’ is a term you’ll likely come across when researching crypto custodial services. To put it another way, “cold storage” refers to the practice of keeping cryptocurrency in an offline wallet.

This greatly minimizes the risk of a third party acquiring access to a wallet’s private keys when it isn’t connected to the internet. When someone buys a cryptocurrency like Bitcoin, Ethereum, or Litecoin, they are given a public and private key. These keys, which are made up of a series of numbers and letters, guarantee that the coin in question belongs to the rightful owner.

These keys are protected by wallets, which keep them out of the hands of strangers. A wallet can be either a software or a hardware wallet, depending on the user’s preference. It is called “hot storage” because software wallets are always linked to the internet, making them ideal locations for storing private keys. Because they don’t keep an active connection, storing keys in a hardware wallet is referred to as “cold storage.”

The custodial service utilized by Bitcoin IRA issuers will take care of any storage issues, so all you have to do is choose the cryptocurrency you wish to invest in.

What are Custodial Fees?

Your bitcoin purchase for your IRA is handled by a broker who is affiliated with the IRA provider. They not only make the transaction possible, but they also keep the bitcoin.

Large insurance plans are needed to safeguard custodial providers and their customers in the event of a security compromise.

Because of these expenditures, custodial services charge a small monthly fee of between 0.5% and 0.7% of the total account value for the IRA holder. To process, buy and sell orders, custodial providers charge a fee between 1% and 15%.

What is an IRA Rollover?

Funds can be transferred from employer-sponsored investment accounts (such as 401k or 403b) into an IRA.

In order to acquire more control over their retirement fund while retaining tax-free benefits, many people choose to roll over their accounts. Rollovers can also be done when an employee leaves a company that had a 401k with them. If they don’t want to transfer their 401(k) to their new workplace, the best option is usually to roll it over into an IRA.

Is a Rollover IRA subject to tax?

At most times, the owner of an employer-sponsored retirement plan doesn’t have to pay any taxes on the money transferred to an IRA.

It’s worth noting that the account holder will have to pay taxes if less than 100% of the funds are transferred.

How can I transfer my IRA to bitcoin?

You must first choose a self-directed IRA that permits you to invest in bitcoin if you want to transfer your IRA to bitcoin. Your current IRA provider can assist you in rolling over your existing IRA funds into your chosen self-directed IRA after you’ve located one. The funds can then be invested in bitcoin once the balance has been rolled over.

Final Thoughts

Cryptocurrency prices are projected to climb as more investors, both retail and institutional, embrace digital assets. Bitcoin and other large-cap cryptocurrencies are viewed by many investors as a great inflation hedge as the federal government increases the money supply.

A self-directed IRA allows you to invest in bitcoin within your retirement account. IRA accounts that allow you to invest in particular cryptocurrencies may have higher fees and minimum investment requirements, but they are worth it in the long run. A trusted financial advisor can help you determine whether or not a self-directed IRA is good for you.

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Peter Grantham

Peter has been an avid investor in for all his life. Over that time he has accumulated a wealth of knowledge and experience including stocks, bonds, real estate, retirement, precious metals, cryptocurrencies and business investments. You can get in touch at my email: info@smallunites.org As the owner of this site "My Gold Silver Bitcoin", he aims to bring his knowledge and experience to new investors and seasoned veterans. My mailing address is: 41847 Moen Grove, Greenton, Arkansas, 80976

The owners of this website may be paid to recommend Goldco. The content on this website, including any positive reviews of Goldco and other reviews, may not be neutral or independent.

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