Table of Contents:
How Does a Bitcoin IRA Work?
Bitcoin IRAs operate similarly to traditional IRAs, except that you invest in what the IRS refers to as convertible virtual currencies rather than mutual fund shares.
There are two sorts of IRAs that apply: self-directed individual retirement accounts (SDIRAs) and crypto-specific individual retirement accounts (IRAs). The distinction is in who controls the “key” — you in the first case or a third party known as a custodian in the second case.
A self-directed IRA is a form of IRA that enables holders to invest in alternative asset classes that are not accessible to holders of standard IRAs or Roth IRAs. Cryptocurrencies, such as Bitcoin, are one kind of asset class that might help diversify your retirement portfolio.
As with any SDIRA, this is an option best suited for someone willing to invest the time and work necessary to set it up and ensure its success. Bear in mind that custodians are not financial advisors and do not do substantial due research on your behalf. Because it is self-directed, you are accountable for your own actions.
On the other hand, crypto IRAs enable investors to choose from an expanding selection of providers that operate as money custodians for your crypto wallet.
1. Tax-deferred Cryptocurrency investment
Since it is a self-directed IRA, your Bitcoin IRA account enables you to make long-term investments in alternative assets of your choice without incurring capital gains or dividend taxes.
As with a regular IRA, contributions are tax-deductible in the year they are made, and taxes are only due when money is withdrawn. However, you may be subject to an extra penalty if you take money before retirement.
2. Gold investment at a low cost
Along with digital currencies, you may purchase gold via a Bitcoin IRA. The expenses and method are identical to those for cryptocurrency investment, except that you are purchasing ownership rights to actual gold bars.
Bitcoin IRA eliminates a significant portion of the brokerage and storage fees typically connected with gold purchases. As a result, you’ll pay reduced costs, and the structure is identical to that of cryptocurrency investments.
3. Interest-bearing account
Along with the potential for the long-term growth of your IRA, you may earn income on the cash, Bitcoin, and Ethereum held in your Bitcoin IRA account through the IRA Earn program.
Your account must have at least $10,000 in coins worth to earn interest. You must opt in to the program, and there is a $100 enrollment cost and a $100 termination fee.
What Can Be Done Better
1. Exorbitant Fees
In addition to continuing custody costs, Bitcoin IRA charges a platform fee on the initial deposit and subsequent transactions. While these costs are standard for bitcoin IRA accounts, it’s worth assessing if they’re justified before creating an account.
2. No Cryptocurrency Purchases
You cannot transfer bitcoin assets into an IRA due to IRS limitations. The IRS demands that you fund your IRA with US dollars, even if you invest in Bitcoin.
This is not a Bitcoin IRA-specific law; it is an IRS requirement for all crypto-based retirement accounts.
3. Small Crypto Selection
Bitcoin IRA currently supports just nine coins. While you may purchase popular currencies like Bitcoin and Ethereum, this is not the platform for you if you’re looking to purchase a bigger range of altcoins.
It does, however, enable you to invest in gold, which is not accessible on every cryptocurrency platform.
4. Liquidity Constraints
Investing in any kind of retirement account affects the liquidity of your assets – your ability to withdraw and spend money when necessary.
This does not imply that your money is permanently trapped in a Bitcoin IRA; you may roll over your funds into another retirement account at any time, just as you do with any other retirement account. Transferring your retirement investment from crypto to the standard stock market, on the other hand, exposes you to the risk of a big fluctuation in its value, something you would not experience with a traditional IRA.
If you want to save money on cryptocurrency exchange fees and are not investing in an IRA, BitTrust is the biggest and most popular cryptocurrency exchange. It offers an unequaled assortment of cryptocurrencies and a feature-rich platform. Reach out to us today by calling 855-642-8800.