Use Bitcoin in Your IRA

  • Bitcoin is a digital currency and payment system that was created by Satoshi Nakamoto in 2009.
  • Unlike physical currencies, bitcoin is not backed by a government.
  • Cryptocurrencies such as Bitcoin trade on public exchanges, just like equities and other assets.

Bitcoin and other digital currencies have become increasingly popular as an investment vehicle. The cryptocurrency is an alternative form of money that has largely replaced physical cash. Bitcoin has a number of benefits, including anonymity and a generally lower cost of use.
Unlike traditional currencies, bitcoin is not backed by a government, such as the Federal Reserve. Instead, bitcoin is backed by mathematics and cryptography, making it more difficult for hackers to steal and counterfeit.

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A Quick Look At Traditional IRAs

A traditional IRA allows investors to set aside money for retirement without paying taxes on the earnings until they are distributed from the account. IRAs can be funded with cash, stocks, mutual funds, and bonds. In some circumstances, a traditional IRA owner can withdraw money from their account without having to pay income taxes on the money.
There are various rules regarding when and how it can be accessed. Money can be withdrawn before age 59.5 without incurring a penalty. If the owner is older than the age of 59.5 and the money is not withdrawn for a valid reason, then a penalty may apply.
The Internal Revenue Service (IRS) offers two types of IRAs: a traditional IRA and a Roth IRA.

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Using a Traditional IRA to Buy Bitcoin

There are restrictions when it comes to using a Traditional IRA to invest in Bitcoin. Under the IRS code, a Traditional IRA can only be invested in stocks, bonds, mutual funds, and exchange-traded funds (ETFs). These investments must also be held in physical paper form (e.g., shares of stock in a brokerage account) or in another type of account. For this reason, you can't use an IRA to buy Bitcoin directly.

A Quick Look At Roth IRAs

A Roth IRA is a type of Individual Retirement Account (IRA) that a person can open with a financial institution. While there are no set income limitations on who may open a Roth IRA, the account is funded with after-tax, or non-deductible, dollars. In the future, when the person starts taking distributions from the account, the distributions will be taxed as income, rather than as income plus penalties.
People are allowed to contribute up to $5,500 per year to a Roth IRA, or up to $6,500 per year if a person is age 50 or older.

Using a Roth IRA to Buy Bitcoin

The Roth IRA is a retirement account that has several advantages over traditional and SEP IRAs. For one, contributions may be withdrawn at any time without penalty, provided certain criteria are met.
Bitcoin and other cryptocurrencies are currently not accepted as an IRA contribution. However, some services now accept cryptocurrencies as payment for an IRA contribution.
The Bitcoin IRA is a self-directed IRA that allows investors to buy bitcoin and other digital assets with their IRA funds. The company, based in Miami, Florida, and founded in 2016, has offices in New York and Chicago. Investors have several options when it comes to purchasing bitcoin, including purchasing it outright, which incurs a 0% fee. Another option is purchasing bitcoin in a monthly plan, which incurs a 0% fee on the first $2,500, 2% fee on the next $2,500, and 3% fee on any amount over $10,000.

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A Quick Look At SEP IRAs

The Simplified Employee Pension (SEP) IRA plan was established by the Employee Retirement Income Security Act (ERISA) of 1974. An employer who sets up a SEP IRA has control over all contributions and investments. The SEP IRA is a retirement plan for small employers that are not offered any other retirement plan options by the IRS.
The SEP IRA offers the control and simplicity of a solo 401(k) plan, plus the ability to deduct contributions on the employer's tax returns. Employees do not contribute to SEP IRAs, and employer contributions are considered mandatory.

Using a SEP IRA to Buy Bitcoin

A Simplified Employee Pension IRA, or SEP IRA, is an IRA that can be formed by self-employed individuals and small business owners.
To qualify, the business must employ you, the owner, and at least one other person. The business must also not be incorporated.

A Quick Look At SIMPLE IRAs

SIMPLE IRAs are individual retirement accounts (IRAs) that are created and funded as traditional IRAs. SIMPLE IRA plans have a set limit of $13,000 per year in contributions, and owners are allowed to make only $12,500 in contributions in 2019. Self-employed business owners are also eligible to make additional "catch-up" contributions.
When deciding to invest in Bitcoin through a SIMPLE IRA, investors should first determine how their IRA custodian will store the virtual currency. Some custodians will store Bitcoin directly, while others may simply record the price and value of the Bitcoin in the IRA account.

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bitcoin in your ira

Using a SIMPLE IRA to Buy Bitcoin

A SIMPLE IRA is a retirement plan for small businesses that are often run by self-employed sole proprietors.
To fund a SIMPLE IRA, your employer must first contribute a certain percentage of your salary to your retirement plan. For example, your employer might contribute 3% of your salary to your SIMPLE IRA. The 3% is the maximum amount that can be contributed by your employer.

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The Bottom Line

Investors have jumped on the cryptocurrency bandwagon in recent years, and they've also utilized cryptocurrency-related stocks and ETFs in their portfolios.
While Bitcoin may not be appropriate for small accounts, larger investors can benefit greatly from investing in Bitcoin with their IRA.