Bitcoin IRAs, or cryptocurrency IRAs, are self-directed individual retirement accounts that allow you to invest in cryptocurrency through your retirement account. Cryptocurrencies have been gaining tremendous popularity in recent years, and an IRA that allows you to invest in these digital currencies opens the door to potentially substantial gains.
But cryptocurrencies are also extremely volatile and high risk. So while they might make a strong addition to your portfolio, there are a number of factors you should first consider.
Traditional IRAs vs. Bitcoin IRAs
While traditional IRAs and Bitcoin IRAs have the same IRS rules and requirements, they differ in a couple ways.
|Features||Traditional IRA||Bitcoin IRA|
*Some self-directed IRAs may offer other alternative investment options as well.
|Contribution limits||$6,000 in 2021 ($7,000 if you’re 50 or older)||$6,000 in 2021 ($7,000 if you’re 50 or older)|
*Fees in self-directed IRAs are typically much higher than regular IRAs
Top 3 bitcoin IRAs 2021
Three of the top bitcoin IRAs available to investors:
1. Bitcoin IRA
The company also requires a minimum deposit of $3,000, which isn’t the most expensive, but it also isn’t the cheapest. Some investors may also prefer access to more cryptocurrencies.
- What it offers: Alto is a highly rated self-directed IRA platform that offers IRAs for a variety of alternative assets – from real estate to artwork to crypto. It’s transparent about its fee structure and has no minimum investment requirements. The company partners with Coinbase to offer trading access to more than 80 types of cryptocurrencies, including Bitcoin, Ethereum, Tether and more.
- Who it’s best for: Investors who need or want a low minimum investment requirement, 24/7 trading and fewer fees. Investors who want access to most cryptocurrencies on the market.
- What to watch out for: Alto charges a 1% annual account fee that ranges between $2 and $25 per month based on your IRA balance for the prior month. The higher your balance, the higher your fee.
- Bitcoin (BTC)
- Bitcoin Cash (BCH)
- Ethereum (ETH)
- Ethereum Classic (ETC)
- Litecoin (LTC)
- A $195 annual maintenance fee.
- 0.0005% a month for storage and insurance.
This fee structure is set to change when the company launches its upcoming self-trading platform, which is on schedule to be released in October 2021. The new fee structure will include:
- a $29.95 a month fee that includes storage and insurance
- a one-time service fee that ranges from 2% to 12% depending on your balance
4 steps to invest in a Bitcoin IRA
It takes only a few steps to get your Bitcoin IRA up and running.
- Decide on a provider. Compare self-directed IRA providers by fees, reliability and cryptocurrencies available to trade. Start with our list of the top Bitcoin IRAs, but conduct your own research so you’re comfortable with your investment.
- Open your account. You’ll need to provide personal information such as your name, date of birth and Social Security number.
- Fund your account. Many self-directed IRAs allow you to fund your account by transferring funds from an existing retirement account or cash from a bank account.
- Choose your investments. Research cryptocurrencies and decide where you want to invest.
4 bitcoin IRA fees to watch for
Bitcoin IRAs are self-directed IRAs, which come with a different set of fees compared to regular IRAs. These vary by provider, but generally include:
- Account setup fees. A one-time fee to set up your account.
- Annual custodian fees. An annual fee for the maintenance of your account.
- Asset fees. A storage fee for certain or all assets.
- Transaction fees. A fee charged for each transaction you make in your account.
Benefits and drawbacks of bitcoin IRAs
Cryptocurrencies are becoming increasingly popular and are worth considering as an addition to your portfolio. These are the pros and cons of cryptocurrency to help guide you in deciding if they are right for your investment goals.
Benefits of bitcoin IRAs
As an investment, bitcoin IRAs offer the following benefits:
- Explosive growth and significant potential for continued appreciation. Bitcoin hit an all-time high of nearly $65,000 in April 2021. A year prior it was around $7,000. Similarly, Ethereum has grown more than 800% in the past year alone. While not every crypto has seen this type of growth and there’s no guarantee prices will return to these levels, many analysts point to an untapped market that has a lot more room to run.
- Diversification. Cryptocurrencies aren’t tightly correlated with the stock market. While the correlation is close at times, other times it isn’t. So owning some crypto can increase your portfolio’s diversification.
- Potential hedge against inflation. Many cryptocurrencies are finite in supply. Only a specific number of coins will ever be in circulation, or there’s a limit on the number of new coins that can be generated at any given time. This limit results in an increase in demand, which helps prevent inflation over time.
Drawbacks of bitcoin IRAs
Before investing in a bitcoin IRA, there are a few things you should consider:
- Price volatility. While volatility can lead to enormous gains, it goes both ways. After hitting its high of over $65,000 in April 2021, Bitcoin lost more than half its value over the following three months. If you pay close attention to its performance and can’t stomach its instability, a Bitcoin IRA might not be right for you.
- Cybersecurity. Like any digital asset, cryptocurrencies are vulnerable to system breaches and cyber attacks. Back in August 2021, a hacker penetrated Poly Network and made away with more than $600 million in digital coins — even though they later returned most of it. This isn’t the first time crypto platforms have been breached, and it likely won’t be the last.
- Scalability. Many experts see scalability as one of the biggest challenges facing cryptocurrencies. This stems from the decentralized nature of crypto, where every user contributes to maintaining the integrity of the currency. The larger the system, the more difficult it is to verify transactions.
- Fees. Compared to regular IRAs, the fees associated with self-directed IRAs are high. Many charge an annual fee, asset fee and a transaction fee, and these can cost up to several hundred dollars each.
Compare retirement accounts
Bitcoin IRAs allow you to invest in cryptocurrency with your retirement account. They can be a great option for investors who want to diversify their retirement savings beyond the traditional assets offered in regular IRA accounts.
But beware that fees are much higher with these types of IRAs and investing in cryptocurrencies come with a unique set of risks. Bitcoin IRAs are not for everyone, but they might also have a place within your retirement plan.
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