What Is a Bitcoin IRA?

by Josh Biggs in Business on 11th June 2021

In addition to the traditional retirement plan, leaving some extra money on the side has long been a major option for savings. Those who were willing to risk a little more but also to earn more opted for real estate, stock market, precious metals, etc. It is good to have all this in your investment portfolio because each of these investments has its pros and cons, as seen here.

But things change fast, all under the influence of modern technology. People have moved their lives to the digital world. The innovations that caused the real revolution are cryptocurrencies. Among other things, they have become one of the alternative methods to gain financial stability and prosperity.

Reasons to Invest in Cryptocurrencies

Some crypto supporters see a bright future for Bitcoins and other digital currencies. The predictions are that these assets will replace paper money and cards and make the global economy open and transparent. While this is quite a possible scenario, let’s back to reality. For now, crypto money is an excellent chance to place your funds and earn some extra income now or in years to come.

With traditional savings, you keep your money in the banks and allow them to place your funds. With digital coins, there is no bank or any other institution that dictates the terms of transactions. Trading crypto money is an exclusive exchange between two parties. You own the assets and all the privileges of managing them.

This type of investment is the best for portfolio diversification, so you get the most benefit once you retire. Including Bitcoin in your portfolio can protect your retirement account in case of an economic crisis or any major market downturn in the future.

The growing popularity and digitalization of everything is another reason why investors turn to crypto money. Having it as a part of your holdings in the next few decades will likely bring you profit. So if you’re looking for a new, growth-oriented investment vehicle, this might be it.

Have a Dose of Caution

For all independent investments that you make, you should perform the analysis on your own. You should do the same when you think how to buy Bitcoin in an IRA and make it a part of your retirement strategy. As your primary goal is to protect your investments, you must be aware of possible risks.

Although promising, digital assets are highly volatile. A variety of factors can affect their value. Since the market is still not strictly regulated, prices can go wild. That is why financial experts suggest that cryptocurrencies be an alternative asset. It’s good to have them in your portfolio, but don’t put all your hopes into them.

Self-Directed IRA 

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You should know that it’s not all rainbows and butterflies when it comes to Bitcoin purchases as your retirement investment. No 401(k) or IRA allows you to invest directly into digital assets like cryptocurrencies. That’s why you should hold a separate account, i.e., a self-directed IRA.

More on the retirement plans you have at disposal:

Unlike traditional IRA, this one allows you to invest your retirement funds the way you want. It might have a higher risk of uncertainty, but it lets the owners have higher flexibility. Any decision you bring will be directed through custodians.

Since it’s self-directed, you are fully in charge of choosing your investment portfolio with stocks, bonds, mutual funds, etc. You prefer Bitcoin? No problem. Also, you can decide how much of your income you want to distribute. Still, keep in mind the upper limit of annual funds you can contribute to your IRA.

Self-directed IRAs allow you to choose your financial advisors. When you invest in a traditional IRA, you work with a commission-only firm. It means you pay more money each year because they get a cut of your investments. 

How Crypto IRA Works


From the point of view of the IRS, Bitcoin and other digital currencies have treatment as properties. That means that they are subject to taxation even if they don’t exist in physical form. Also, this means that for these assets, you need the mediation of custodians.

After deciding on your retirement investment strategy and opt to invest a portion of your savings in Bitcoin, you should find a reliable custodian. You can find more information about them online, or you can get advice from friends and colleagues. 

Make sure the custodian you choose has experience with Bitcoin IRAs. The account types, access to exchanges, and available coins should line up with your requirements. Also, look for those that can provide you with secured storage methods to keep your digital coins from being stolen.

Now, things get a bit complex, as you have to register an LLC that will be owned by IRA and custodian. That is a necessary step prescribed by the IRS due to the taxation of digital assets. But because of IRA ownership, your gains will be exempt from taxation.

Process of Buying Bitcoin

Once you register an LLC, you will need a business checking account. Now, you have to fund it and wait on average three to five days. It takes so much for the funds to be available to your account after passing strict checks. This period depends on the IRA company that you choose.

Now you can use those funds to buy Bitcoin or any other alternative assets. You can visit this website for a more detailed buying guide. You can trade with whatever coin you want, whenever you want. That’s your right regulated by the self-direction of the IRA you set.

When you finally set everything up, it’s time to invest. Things here are not different than when trading cryptocurrencies. You have to register at some cryptocurrency exchange as your IRA-owned LLC. You also create a digital wallet linked to a checking account. Another option is to purchase digital assets through brokers.

Investing a part of your savings in Bitcoin is a good idea, especially if you’re still decades away from retirement. For a longer time horizon, holding a digital asset has a high potential of bringing profit. As this type of IRA requires your participation, it’s more complex than any traditional retirement account. But for those who know what they are doing, this diligence pays off.

Categories: Business