To understand what a Bitcoin IRA is, it’s important to understand what a vanilla IRA is.
‘IRA’ stands for ‘Individual Retirement Account’ (or ‘Arrangement’). According to Fidelity, and IRA is
...an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.
Once money is in the IRA, the individual can use the money to make investments in stocks, bonds, and other assets (with certian limitations outlined below).
There are a few different kinds of IRAs worth comparing, but the main ones are known as ‘Traditional’ and ‘Roth’ IRAs.
In a traditional IRA, you can contribute money toward your retirement and you can deduct that money from your anuual tax return. This money grows tax deferred, meaning you don’t not pay any taxes on it until you retire and start pulling from the IRA.
This is good if you anticipate that your income will go down once you retire, allowing you to pay at a lower tax bracket. You are also growing your money on a larger stack of dollars because you didn’t pay any taxes on that money while it was growing.
Roth IRAs are very similar to traditional IRAs except you pay all your taxes upfront every time you contribute instead of when you retire. Any growth that occurs on the money after the taxes paid at contribution is yours. There are requirements to this tax free growth, so you should be aware of those before deciding.
You may be wondering what any of this has to do with Bitcoin.
Well, a Bitcoin IRA is just a standard IRA where some of the investments in it are in Bitcoin or other cryptocurrency.
However it’s worth noting: while Roth and Traditional IRAs are common, they aren’t all the same.
The IRS has certain rules that all IRAs must comply with, but the ‘custodians’ that are authorized to offer these IRAs (usually big banks) often have their own restrictions. In most cases, these restrictions include the buying and selling of Bitcoin and cryptocurrencies.
So if you want to use your IRA retirement account to buy and hold Bitcoin, you need to find an qualifying IRA custodian that does not have these restrictions.
ITrust Capital is an IRA custodian based out of Irvine California.
ITrust boasts the only Bitcoin IRA that allows crypto trading 24/7 within their IRA. Asset custody provided by Curv.
Bitcoin IRA is the more well-known and sleek Bitcoin IRAs out there today.
Bitcoin IRA has processed more than $400 million in client investments and has more than 650 5-star reviews on Google and other rating platforms.
Equity trust IRAs are self-directed meaning you can use the IRA assets to invest in any IRS approved asset you want, such as real estate, precious metals, commodities, and foriegn currencies as well as crypto.
Equity Trust is an old, established player so they aren't likely to run off with your assets, but given their lack of specialization in crypto, they may not be the most trusted custodian.
BitIra is one of the older IRAs to support crypto. They also allow their customers to hold traditiona stocks and bonds as well as tax liens, real-estate, and precious metals.
Unfortunately, there is no dedicated app for managing your IRA like Bitcoin IRA has.
Bitcoin IRAs have many advantages to consider.
First, many investors consider Bitcoin to be a non-correlated asset. This means that when the regular stock market goes down, Bitcoin is not expected to behave the same way. If this is true, then adding Bitcoin to your investment portfolio should decrese risk.
Second, if you believe that Bitcoin will increase in value over time, then IRAs are a great way to grow that wealth in a tax advantaged way.
Finally, IRAs also make gains from crypto far more easy to account for on your tax returns since you either only pay taxes on the money you put in (Roth IRA) or you only pay taxes once when you take the money out (Traditional IRA).
Bitcoin IRAs aren’t all sunshine and rainbows. They come with some disadvantages as well.
First, retirement investments tend to be in safer, more ‘boring’ assets like fortune 500 stocks because they have much less volatility. Staking your retirement on a wildly volatile asset is risky, esepecially as you get older and near the age of retirement. Even if the investment would eventually pay off, if you start taking payments during a major downturn in the Bitcoin price, it could be bad.
Second, IRAs come with additional fees over simply buying and selling Bitcoins on an exchange. As you may know, fees are a major killer to profit. The Custodian needs to make money too, and all the resources for securing the coins under custody costs a lot of money.
Finally, when you invest in Bitcoin in an IRA, you do not get to hold the Bitcoin. There is therefore no way to really know if the custodian is holding the Bitcoin or if he is actually holding it safely. The custodian could get hacked or they could just run away with your money (the latter is unlikely, but possible).
According to the IRS,
Virtual currency is treated as property and general tax principles applicable to property transactions apply to transactions using virtual currency.
Becuase the IRS defines Bitcoin (and a few other cryptocurrencies, but not all) as property, they are taxed the same as real estate as well as stocks and bonds. Since we are talking about IRAs, then however you would pay tax on a stock held in the IRA is the same way you would tax Bitcoin.
Of course, if you just want to hold Bitcoin, there are better ways to do so than through an IRA.
The best way is to make an account on an exchange and buy it yourself. Then you’d store it on a hardware wallet and make a backup.
Here are some recommended exchanges:
This ad promotes virtual cryptocurrency investing within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in most EU countries, no EU protections & not supervised by the EU regulatory framework. Investments are subject to market risk, including the loss of principal.
If you want to find a specific exchange that services your country and preferred payment type, use our exchange finder.