Bitcoin IRA

Bitcoin IRA allows you to invest in the digital currency known as bitcoin, diversifying your portfolio in your Individual Retirement Account. 


Bitcoin is the up and coming currency, an entirely digital form of legal tender that allows people to transfer funds independently of the regulation of any middleman or central bank. Merchants are increasingly accepting bitcoin as a standard form of payment, and consumers can store them away in digital wallets stored in the cloud like a virtual bank account. Bitcoins have been around since 2009, and can now be purchased using various currencies on bitcoin exchanges.

Because bitcoins are never printed as physical currency, there’s no central bank printing extra money and devaluing the worth of the currency. There is also no risk that any “central authority” could confiscate your bitcoin money in the event of any financial meltdown.

In 1950 no one could fathom how a credit card would work, but now everyone uses them without a second thought, and cash transactions have become all but obsolete. This is the projected trajectory of the bitcoin; it may strike people today as a novelty, but it is on its way to becoming the way people do business, both nationally and internationally.

How it Works: the Bitcoin IRA

As you look at setting up an IRA for investing in bitcoin, you have some options to consider. The first question is whether you want a traditional or a Roth IRA: most people opt for the Roth when they make investments.

You’ll have to pay taxes at the time that you fund your IRA with contributions, but then you won’t have to pay taxes when it comes time to take distributions out of your IRA. Since you’re planning on having more money at that later date, due to your successful investments, you’re better off paying taxes on the lesser amount up front. You can fund your IRA with a personal contribution, up to the allowable amount for the year, or roll over funds from existing IRAs.

Your other choice is whether you want to use a self-directed IRA that can invest in bitcoin as well as other off-WallStreet investments, or whether you’d like to look into some of the dedicated bitcoin IRAs being offered by some brokers. If you use a broker who is already set up for bitcoin, they will already have the whole procedure down to routine details; you’ll just need to tell them when and how much you want. If you’re using a self-directed IRA, you’ll need to get a bitcoin digital wallet, which you will then fund from the IRA.

The final choice is whether you want to save your digital wallet locally on a computer (in this case, in the custody of your broker) or digitally in the cloud. If your broker is set up with a solid system of computer back-ups, either option should be relatively secure. The risk with cloud storage is the possibility of hacking, although the digital wallets employ several levels of security; the risk with local storage is corruption of the hard drive, but that can be protected against by regular backups.

Things to Consider the Bitcoin IRA

It is important to note that bitcoin wallets, owing to the fact that they are independent of banks, are not insured by the FDIC. While they can be far more lucrative investments than savings accounts or CDs, they do carry some risk as well.

Another challenge of investing in bitcoin is finding an IRA custodian who is willing to work with this currency. There are several that offer dedicated bitcoin IRAs, but many of the “big names” aren’t dealing with bitcoin at all. You want to choose a custodian company that’s already familiar with the ins and outs of dealing in bitcoin, and if you are choosing to store your bitcoin locally, you’ll want to make sure the custodian’s technology is set up to handle it.

Bitcoin is not specifically listed as a permitted IRA asset, but it is not excluded either. It certainly doesn’t fit among the assets that are prohibited (like stamps, gems, antiques, or artwork) and there are no regulations specifically addressing their use in IRAs.

In that sense they are something of a gray area, but with brokers offering specific bitcoin IRA options to consumers, there is now plenty of precedence for the approach. Additionally, the IRS has now given its tacit approval with the approval of the BitcoinIRA, a portfolio for retirement investment that is dedicated to the bitcoin market.

Advantages of the Bitcoin IRA

You can increase your bitcoin count by “bitcoin mining,” a process of letting your computer solve complex math problems and generating new bitcoins. Even when you’re not creating currency, bitcoins can gain in value on the bitcoin exchanges.

You can also consider options like the Bitcoin Investment Trust, which makes investment in bitcoins directly available—usually only to accredited investors: they also have arrangements worked out with several of the self-directed IRA platforms. If you investigate which platforms, like Entrust and Pensco, can work with the BIT, you can directly invest in bitcoin in lower increments than you would otherwise be able as an individual investor.

There’s no question, bitcoin is the up and coming currency of the future, and its value is only increasing with time. A bitcoin that was worth ten cents just a few years ago is now valued at over twelve hundred dollars—and as you read this, even that number is likely to be outdated.

Bitcoin is increasingly accepted as currency for local as well as large-scale transactions, and the anonymity of the digital cryptowallet appeals to many consumers.

With its lack of centralized regulation, taxes are not applicable until a person converts bitcoin back to dollars, and (if you’ve chosen a Roth IRA) your bitcoin income will be tax exempt in any case. However, it is one of the reasons for the burgeoning popularity of the bitcoin. It’s growing in value at a rapid rate, both in usage and value, which makes it a great investment for your IRA.