How to Add Bitcoins to Your Retirement Account

Bitcoin has dealt (and continues to deal) with skepticism by financial experts, government officials, and many others, especially as its arrival challenged the idea of centralized authority in the financial industry and government regulation. Following its introduction was a tsunami of cryptocurrencies and tokens. Most of these were not designed to act as securities or to grow in value—they were intended to be used as a form of payment that removed third parties from the equation and increase the speed of transactions. Others were designed to be used within a blockchain network as a utility token for powering the network.

However, Bitcoin became exchangeable for fiat money at some point, and its popularity grew alongside its cost. Investors began to view it as an opportunity to grow wealth and started pouring money into it.

Retail and professional investors began to wonder if they could hold Bitcoin long enough to have it create the value needed to help fund their retirement. Of course, that begged several questions; can you add Bitcoin to your retirement, how would you do so, and what are the risks of adding it to your retirement portfolio?

Key Takeaways

  • Bitcoin was not designed nor intended to be an investment asset, but it has turned into one due to circumstances outside the control of the community of developers.
  • You can use Bitcoin in a buy and hold strategy or place them in a self-directed IRA.
  • Some companies market Bitcoin IRAs, but you should take care when using one of these companies and do your research.
  • Bitcoin investing comes with additional risks, especially if you're using it as a retirement asset.


Is Bitcoin an Investment Asset?

Traditional investment vehicles continue to dominate the markets, but the challenging financial climate can cause investors to look for alternatives. Generally, during turbulent times, investors turn to gold, precious metals, and U.S. Treasuries to attempt to maintain the value of their portfolios.

Bitcoin had been attractive to investors for several years before the Covid-19 pandemic hit in 2020, as witnessed by its increasing price after 2016. However, the pandemic caused shutdowns in many industries. The stock market took a significant hit in 2020 as jobs were lost, workers were laid off, and businesses folded. As a result, the economy took a downturn, and a short recession followed.

Looking for alternatives to help maintain the value of their portfolios through the turbulence, some investors shunned precious metals and Treasuries for Bitcoin. Amazingly, demand for the digital asset grew along with its price, and investors began seeing value increases. Investors are generally happy to maintain their portfolio's value in this part of the economic cycle—so many continued to buy the digital asset. Prices continued to rise through 2021, finally hitting $69,000 in November before falling back down to hover around $40,000.

Many cryptocurrency investors use it as a way to diversify their portfolio to make up for price drops in other investments.

The Bitcoin investing frenzy went entirely against the original tenents of cryptocurrency. Decentralization and the lack of control were suddenly gone; most bitcoins were held by "whales"—someone with large amounts of bitcoin—and wealthier entities; they were being purchased en masse by large enterprises, wealthy investors, and institutions.

How to Use Bitcoins for Retirement

You can add Bitcoin and other cryptocurrencies to your retirement plan. However, it is best to talk to a professional financial advisor familiar with cryptocurrency about doing so first. An advisor can help you place your Bitcoin into your portfolio as part of a strategic investment plan.

Regulations regarding adding cryptocurrencies to IRAs, IRA limited liability corporations, and where you can store them are complex and subject to change. You should consult a financial advisor before initiating any cryptocurrency investment actions.

Buy and Hold

One of the oldest methods of investing in an asset is buying and holding it. Bitcoin has proven, at least since its inception, that it is popular and has value. People worldwide are using it in place of fiat currency in areas where there aren't financial institutions to offer loans or other services. Demand is growing worldwide, as is its use. Bitcoin may continue to be used, hold value over a lifetime, and turn into an asset that will generate enough value to help fund retirement.

Self-Directed IRAs

Most individual retirement accounts (IRAs) are managed by custodians or trustees—mostly banks or broker-dealers. Self-directed IRAs allow you to control what is in your IRA using these professionals—in theory, you should be able to add Bitcoin to these accounts if it's allowed.

You can indirectly add cryptocurrencies to your self-directed IRA through purchase due to the language in the regulations. The IRS does not allow you to place cryptocurrencies in your IRA because it considers them to be property, but you can add property to an IRA if the IRA buys it and holds it.

In April 2022, Fidelity Investments introduced a first-of-its-kind Digital Assets Account, allowing investors to place Bitcoin in their 401(k)s.

Bitcoin IRA Companies

There are several Bitcoin IRA companies that attempt to make investing in Bitcoin for retirement easier. However, you should thoroughly investigate these companies before committing any funds to them. Bitcoin and cryptocurrencies have a tendency to attract people with dishonest intentions due to their pseudo-anonymity.

However, it's important to note that while scams are one of the largest methods used by bad actors, more cryptocurrencies are stolen outright than acquired through scams—and regardless of what politicians and media outlets say, not all cryptocurrency-related offerings are scams.

What Are the Risks of Using Bitcoin for Retirement?

As with all investments, there is risk. Bitcoin comes with extra risk because it is much newer than other investment types. Because it is so new, its role is still being determined. This means it is still in its price discovery phase, which compounds its market risk.

Bitcoin has several investing risks:

  • Regulatory risk: Regulators are working hard to find a way to regulate Bitcoin for "investor safety." If they successfully create a regulatory framework, it could wreak havoc on Bitcoin's price.
  • Insurance risk: Cryptocurrency is not insured by the Securities Investor Protection Corporation or the Federal Depository Insurance Corporation—which means that you have no recourse for getting your money back if something happens.
  • Market risk: Bitcoin prices fluctuate, sometimes hundreds of dollars a day. You could go to an exchange one day to cash in some bitcoin at an ideal value, only to find out that between the time you initiated the transaction and the time it went through the network, the value has significantly dropped.
  • Fraud risk: Like other investment types, there are always bad actors trying to steal from others. Bitcoin is also susceptible to fraudulent activity.

While a small exposure to Bitcoins over the long-term via these self-directed IRAs can be a rewarding bet, you should consider the speculative nature of Bitcoin, the rules and penalties that apply to self-directed IRAs, and the evolving nature of regulations towards virtual currencies before taking a plunge.

How Do Beginners Invest In Bitcoin?

Beginners should have an investing strategy in mind before buying bitcoin. Once you have a plan and goals, you can sign up on an exchange like Coinbase, use its wallet to hold your keys, and buy small portions of bitcoin. Before doing so, it's best to consult with a financial advisor who can help guide you with your investment goals.

Is It Worth Investing In Bitcoin?

Whether Bitcoin is worth investing in depends on your financial circumstances, goals, risk tolerance, and outlook on the cryptocurrency market. Before investing in Bitcoin or cryptocurrencies, you should talk to a professional financial advisor.

What Is the Minimum Amount to Invest in Bitcoin?

Bitcoin isn't an investment the way a stock or a mutual fund is, so there are no minimum requirements other than a high risk tolerance.

Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.

Article Sources

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  1. Coinbase. "Bitcoin Price."

  2. Internal Revenue Service. "Retirement Topics - Prohibited Transactions."

  3. Fidelity Investments. "Fidelity Investments Advances Leading Position as Digital Assets Provider With Launch of Industry’s First-of-Its-Kind Bitcoin Offering for 401(k) Core Investment Lineup."

  4. Chainalysis. "Crypto Crime Trends for 2022: Illicit Transaction Activity Reaches All-Time High in Value, All-Time Low in Share of All Cryptocurrency Activity."

  5. U.S. Securities and Exchange Commission. "Investor Alert: Bitcoin and Other Virtual Currency- Related Investments."

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