Buying Crypto With Your Retirement Account

Traditional retirement accounts are limited by regulations, require long commitments, and are not easy for everyone to access. The phenomenal returns realized by some cryptocurrency investors has captured the interest of people looking for alternative ways to fund their retirement.

This interest has led to demand for retirement accounts that allow cryptocurrency in them. Brokers and retirement plan providers have answered the call by creating alternate plans that accept crypto. Learn more about crypto retirement accounts, how to get one, and the risks involved.

Key Takeaways

  • You can use an IRA company that allows you to buy cryptocurrency with the account.
  • You'll need to fund your crypto-compatible retirement account by sending your contributions to that account, transferring funds from your existing account, or rolling over your account to a crypto-compatible one.
  • Once your account is funded, you can buy cryptocurrency from the account.
  • When choosing an IRA that lets you buy crypto from the account, ensure they are regulated and licensed.

1. Find an IRA That Lets You Buy Crypto

The IRS does not allow you to place property (like securities or bonds) in retirement accounts. However, you can buy property with funds from your retirement account and hold it there. Because the Internal Revenue Service (IRS) considers cryptocurrencies property for tax purposes, you can add them to an IRA if the IRA buys it and holds it.

The most challenging part of placing crypto in your retirement account is finding a company that lets you use the funds from the account for purchases. You'll need to look for a company that allows you to include crypto in a self-directed IRA, which enables you to control what is in your account.

Some examples of crypto IRA companies you can look at are:

  • BitcoinIRA
  • iTrustCapital
  • CoinIRA
  • BitIRA
  • Equity Trust

There are many other IRA companies allowing cryptocurrency in accounts. No matter which one you choose, it's essential to vet them to ensure they are legitimate and regulated. Additionally, you should look out for scams and fraudulent offerings. The Securities and Exchange Commission published an investor alert in 2018 regarding fraudulent activities some companies use to attract investors.

In April 2022, Fidelity Investments introduced its Digital Assets Account, which allows investors to place a percentage of Bitcoin in their 401(k)s.

2. Fund Your IRA

You have a few options for funding your cryptocurrency IRA. First, you can contribute to it in the usual fashion with cash, checks, or direct deposits, making sure not to contribute more than you're allowed. In 2022, the maximum amount you can contribute per year is $6,000, or $7,000 if you're 50 or older. These limits increase to $6,500 and $7,500 respectively for tax year 2023.

Second, if you have an employer-sponsored plan, you could roll it into a Rollover IRA that allows cryptocurrency. A rollover will enable you to keep the tax-deferred status of the funds you have in the account. Third, you can transfer your retirement account into an IRA that accepts crypto.

3. Use the IRA to Buy Crypto

Once you've funded your account, you can begin trading crypto with the funds. When you start trading, it's essential to make sure you account for blockchain and exchange transaction fees because these can slowly bleed capital from your account if you're an active crypto trader.

Additionally, ensure you understand any fees the IRA company might charge. You might find annual fees, trading fees, or key storage fees.

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.

Risks of Using Cryptocurrency for Retirement

As with all investments, there is risk. Cryptocurrency comes with extra and unique risks 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.

Cryptocurrency has several investing risks:

  • Regulatory risk: Regulators are working hard to find a way to regulate crypto for "investor safety." If they successfully create a regulatory framework, it could wreak havoc on prices.
  • 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: Some cryptocurrency prices fluctuate up to hundreds of dollars a day. You could log into your favorite exchange one day to cash in some crypto 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: Similar to other investments, there are always bad actors trying to steal from others. Cryptocurrency is also susceptible to fraudulent activity.

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

Can I Buy Crypto With My Roth IRA?

A self-directed, crypto-compatible Roth IRA lets you purchase crypto with funds from the IRA and place them into the account. Generally, you won't be able to purchase them with a regular Roth IRA.

Does Coinbase Allow IRA Accounts?

Coinbase is involved in retirement accounts, although not yet in IRAs. In June 2021, ForUsAll Inc., a 401(k) administrator, joined Coinbase to offer cryptocurrency in employer sponsored retirement accounts. To gain access to this product, your employer must use ForUsAll, Inc. as its retirement plan administrator.

Is a Crypto IRA a Good Idea?

There are significant risks involved with investing in crypto. There can be large gains, but there can also be large losses. Crypto might be another way to diversify a portfolio to compensate for downturns in other markets, but the risk of loss is very high in a retirement account with more than a small percentage of crypto in it.

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. U.S. Department of Labor. “Compliance Assistance Release No. 2022-01: 401(k) Plan Investments in "Cryptocurrencies”.”

  2. Internal Revenue Service. “Digital Assets.”

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

  4. BitcoinIRA. “About Bitcoin IRA.”

  5. iTrustCapital. “About iTrustCapital.”

  6. CoinIRA. “Welcome to Coin IRA.”

  7. BitIRA. “About BitIRA.”

  8. Equity Trust. “About Us.”

  9. U.S. Securities and Exchange Commission. "Investor Alert: Self-Directed IRAs and the Risk of Fraud."

  10. 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."

  11. Internal Revenue Service. "401(k) Limit Increases to $22,500 for 2023, IRA Limit Rises to $6,500."

  12. Internal Revenue Service. "IRA FAQs."

  13. Commodity Futures Trading Commission. “Customer Advisory: Beware 'IRS Approved' Virtual Currency IRAs,” Pages 1-2.

  14. International Monetary Fund. “Regulating Crypto.”

  15. The Federal Deposit Insurance Corporation. “Advisory to FDIC-Insured Institutions Regarding Deposit Insurance and Dealings with Crypto Companies.”

  16. Consumer Financial Protection Bureau. “CFPB Publishes New Bulletin Analyzing Rise in Crypto-Asset Complaints.”

  17. “Bitcoin and Cryptocurrency IRAs.”

  18. Coinbase. “The Crypto Guide to Retirement Savings.”

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