Is Bitcoin Roth IRA Worth The Cost & Should You Include Cryptocurrencies In Your Retirement Plans?

2 min read

Cryptocurrencies have been making headlines for the past year. With the market showing little signs of slowing down, many investors are turning to this volatile, emerging asset class as a possible way to diversify their holdings. The value of Bitcoin, Ethereum, Ripple and other digital currencies has soared over the past year, making it easier than ever for investors to get into the market. However, buying cryptocurrencies isn’t as simple as buying stock in a company. Instead, you’ll need to learn about the specific risks involved and find the best ways to invest in digital currencies. Is a Bitcoin Roth IRA worth the cost? Let’s take a closer look at the advantages and disadvantages.

Putting cryptocurrency in your IRA may not be a good idea.  Cryptocurrencies remain volatile and financial regulators issue warnings, but a younger generation of investors recognizes them as the future of currencies and see them as the future of investing. More investors are asking financial advisors if they should incorporate digital currencies into retirement plans as support for them grows. IRAs can include crypto-currencies, but that doesn’t mean they should.

How Does Cryptocurrency Work?

Unlike paper currencies, cryptocurrencies can be used to purchase goods and services. The most popular cryptocurrency is Bitcoin. Among the other popular cryptocurrencies are Bitcoin, Ethereum, and Dogecoin. According to Carlos Legaspy, president and CEO of Insight Securities in Highland Park, Illinois, people invest in crypto for a variety of reasons, including speculators, a payment method, or because they think it’s the future of money.

Do Roth IRAs allow you to buy bitcoin?

In an IRA, you cannot contribute directly to a cryptocurrency account, but you can trade it within the account. Not every IRA permits crypto purchases, however. Cryptocurrency investments are now offered as alternative investments by custodians, says Legaspy. “There is a kind of fusion of two very different worlds.”

A Roth IRA or a traditional IRA allows investors to hold Bitcoins and other cryptocurrencies. According to Sam Zimmerman, founder and CEO of Sagewell Financial in Cambridge, Massachusetts, a Roth IRA can include Bitcoin and other cryptocurrency assets. In the beginning, there were only a few players, but now even some incumbents offer Bitcoin-based IRAs.

Bitcoin Roth IRA Benefits

Cryptocurrency gains are usually subject to income tax. Storing your cryptocurrency in a Roth IRA can help you avoid having to pay income tax on the investment gains.

You can benefit from holding cryptocurrencies in a Roth IRA if you trade frequently or have large gains over time. “If your gains are short-term, they are subject to the regular marginal income tax rate. When you buy and sell, you can rack up a considerable tax bill,” Legaspy says. “Since you are not planning on using it as a means of payment, if you have a long-term horizon, or if you want to actively trade it, a qualified account may be of interest.”

Cryptocurrency Roth IRAs: What You Need to Know

Around the world, governments and financial regulators have warned investors about the risks of cryptocurrency. There is a risk involved with having a Bitcoin IRA, Zimmerman says, as the legal status for Bitcoin and other cryptocurrencies is still evolving in the U.S. and abroad. “And so what is legal or copacetic today might not be that way tomorrow.”

There is less oversight surrounding cryptocurrency than other types of investment products. “You might get regulation with other types of products. That’s not the case here,” Zimmerman says. Therefore, you can expect your Bitcoin IRA fees to increase quite a bit.”

Bitcoin is a brand new and volatile asset. “There are patterns that occur with other currencies, and Bitcoin is an uncertain currency,” Zimmerman says. It is impossible for us to predict how it might respond or how it has historically responded.

A crypto Roth IRA can diversify your retirement portfolio, but retirement investors should carefully consider whether the high fees and extreme volatility make the investment worthwhile.

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