Have you ever considered investing in bitcoin with your IRA? There are several advantages. Most notably is the fact that Bitcoin was the best performing asset—in the world for the past two years in a row (at the time of the writing of this article). Successful investments can help you amass the wealth you desire in your retirement plan. And the tax-advantaged income that grows in your IRA provides more capital for you to reinvest.
Why Is Bitcoin So Popular?
In the midst of a pandemic, capital preservation tops the priority list of many 
individuals. Cryptocurrency is a form of cash, unregulated and unhindered by the bureaucratic red tape of institutional dollars and cents.
Like gold, crypto assets offer investors a certain hedge against traditional investments on the market, and a way to pay for goods and services should the market go dark. So, despite the challenges of 2020, and regardless of Bitcoin’s volatility when the market crashed in March, Bitcoin recovered quite nicely.
As of the first week of November 2020, Bitcoin had actually outperformed Goldman-Sachs and JP Morgan Chase. In fact, Bitcoin outperformed every other major asset class in 2020, which makes it an attractive investment to consider.
Bitcoin is by far the most well-known type of cryptocurrency, but there are other coins (referred to as altcoins) that are also on the rise. Ethereum, XRP, Litecoin, Polkadot, Cardano and Stellar top the list of crypto assets that have outperformed bitcoin this year, with experts predicting their continual rise. Even in the wake of the crypto currency’s $100 billion plummet in January 2021, the weeks after have seen the asset rebound as investors such as Elon Musk, Ray Dalio, and Mark Cuban express their confidence in bitcoin’s and the block-chain process’s potential.
How Does Bitcoin Work in an IRA?
The IRS treats digital currency the same way they treat personal property for federal income tax reporting purposes. For example, capital gains made upon the sale of personal property must be reported as income on your personal tax return. But, when your IRA sells a piece of real estate it owns, those gains enjoy a tax-sheltered status under the umbrella of your tax-advantaged IRA.
Buying and trading Bitcoin with your personal funds is a bit more complex. You are required to report income on sales as well as goods and services you purchase with digital currency—and tax must be calculated and paid on these transactions.
Buying and trading Bitcoin in an IRA simplifies the process quite a bit. When assets are bought and traded in an IRA, your IRA does not pay taxes on the gains in the year(s) it trades crypto. This is a huge benefit. All income generated by assets the account grows on a tax-sheltered basis, and you only pay taxes on that income in retirement, depending on the type of IRA you have.
- Roth IRA earnings are not taxed if you take distributions after the age of 59 ½ as long as you’ve owned the account for 5 or more years.
- Traditional IRA earnings are not taxed until you take distributions in retirement.
Three Ways to Invest in Bitcoin with an IRA
Many investors acquire Bitcoin as a long-term asset. Even though there are other types of digital currency, only 21 million actual Bitcoin can ever be produced. The fact that there’s a limit helps solidify its value and for many investors—makes an exciting asset to add to their portfolios.
Your IRA can:
- Buy and sell using online platforms
- Invest in the blockchain mining process
- Invest in Bitcoin Trust, ETFs, and hedge funds
Investor Tips for Bitcoin IRAs
You must perform due diligence on all cryptocurrency investments.
- Choose a crypto trading platform that allows IRAs to purchase Bitcoin.
- Make sure the crypto platform operates within IRS regulations.
- Use an IRA administrator like Advanta IRA that allows crypto investments.
Advanta IRA provides secure, onsite cold storage where crypto assets are stored on personal hardware devices. We don’t you charge commission, and our clients can invest in any cryptocurrency that is supported by the ledger Nano platform.
The Bottom Line
Before you invest in Bitcoin in your IRA, you should also educate yourself and gain a working knowledge about how Bitcoin and other digital currencies work. The trading environment is fast paced, much like futures and forex. With Facebook’s plan to roll out digital currency in 2021, and after Paypal announced it was going to allow users to buy and spend Bitcoin and a few other digital currencies, you can see why experts predict the assets’ continual rise into 2021. But, you must understand this market has its ups and downs just as the stock market does. The crypto market is just as volatile. Additionally, the Treasury Department may implement new crypto regulations that could change the crypto trading landscape a bit. While that’s speculation at this point, as an investor, you want to stay abreast of the regulations to protect your own investments.
Advanta IRA allows crytptocurrency assets in the self-directed IRAs they administrate. If you have questions on the process or would like to learn more, please contact us today.
