- Understanding Bitcoin IRAs
- Benefits and Drawbacks of Bitcoin IRAs
Bitcoin was never considered as an ideal investment for retirement. But, many financial firms have started to offer options for investment in cryptocurrency through self-directed Individual Retirement Accounts (IRAs). As per the claims made by Bitcoin IRA, the first providers in this space, around $400 million in client retirement investment has been processed up till March 2020.
Understanding Bitcoin IRAs
When referring to Bitcoin IRA, the users are generally talking about IRA that includes cryptocurrency or Bitcoin as its portfolio of holdings.
Since 2014, Bitcoin and other cryptocurrencies are considered to be property in retirement accounts by the IRS, meaning the holders of IRA will have to pay taxes on them. IRA holders have to find a custodian that accepts Bitcoin in the IRA and it can be a difficult task.
For such holders, self-directed IRAs (SDIRAs), allow for cryptocurrencies as assets.
In recent times, various organizations and custodians have included Bitcoin in their IRAs, and it has gained popularity. BitIRA, Equity Trust, and Bitcoin IRA are such companies.
Benefits and Drawbacks of Bitcoin IRAs
Investors believe that adding Bitcoin or other cryptocurrencies to their retirement portfolio will add diversification. Thus, helping them to protect their retirement accounts at a time when there is a market dip.
The investors are also keen on adding cryptocurrency to their retirement portfolio because of their belief that cryptocurrency in the coming time will continue to grow. IRAs have provided an opportunity for those investors.
The high volatility of the cryptocurrency in recent times makes it a difficult choice as a retirement portfolio. Even the leading cryptocurrency, like Bitcoin, has seen high fluctuations in its prices, within a matter of a few days. For someone who is approaching retirement, such turmoil in prices can be too much to afford and could turn out to be a very risky investment.
Even though Bitcoin has started to gain acceptance as a currency, like El Salvador, which accepted Bitcoin and made it a legal tender alongside the U.S. dollar, many believe that the bubble around Bitcoin could burst any day.
There is a potential tax benefit with Bitcoin IRA, but the fees associated with a self-directed IRA account are very hefty. Bitcoin trading fees are charged in different forms, from initial set-up fees to trading and custody fees. There is also added risk involved, as the firms proposing self-directed IRA services are not bound by broker fiduciary duties, investors are required to do their assessment of the market and the risks associated with it.
Disclaimer: The article is just to provide information and shouldn’t be considered as any financial advice. It is advisable to conduct thorough research before investing in any cryptocurrency.
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