If you are looking for ways to invest in your retirement, you are obviously looking for something that is going to generate a positive return for you over time.
Given that Bitcoin seems to be taking the investment world by storm lately, you might be wondering if that might be a good place to put some of your IRA money. The reality is that there are pros and cons to doing so.
As you may know, Bitcoin can be rather volatile as an investment. This is primarily because it is still in its infancy. That being said, many firms now offer Bitcoin as an option for your IRA retirement fund.
While this might not be for everybody, you will want to continue reading to learn about some of the advantages and disadvantages associated with doing so.
Is It Possible to Put Bitcoin in an IRA?
You can put Bitcoin in an IRA for your retirement. To do so will require that you open a self-directed IRA and follow the rules that set a limit for your annual contributions to this account.
The IRS has classified cryptocurrency as property when it comes to an IRA. This ruling dates to 2014.
If you want to put Bitcoin in your self-directed IRA, you will need to go through a custodian to do. It is not possible to take Bitcoin that you already own and transfer it to an IRA.
This will need to be new Bitcoin that you purchase through a custodian in the year that it goes into your IRA. The same tax rules and other guidelines are attached just like with other types of investments in your retirement account.
3 Pros of Putting Bitcoin in an IRA
As with any investment, there are certain benefits that you can reap when you put cryptocurrency in your self-directed IRA. It is important to weigh each of these carefully against the possible risks before you ultimately decide to include this type of investment in your IRA.
Following are three of the more notable advantages to putting Bitcoin in an IRA.
Add to Your Portfolio’s Diversity
It is always valuable to have a diverse portfolio when it comes to your retirement. You do not want to be too heavy in any one type of investment in the event that the sector fails.
The more diversification that you can put into your IRA, the better protected you are against potential catastrophic downturns in the market.
While Bitcoin may still be proving itself as a viable investment, there is no denying that it offers the diversification component that investors are looking for. It can provide you with the protection that you need, particularly if you are still many years away from retirement.
Tremendous Growth Potential
Few investments have shown the potential for such rapid growth in the market as that of cryptocurrency. Many investors want to include Bitcoin in their IRAs because they believe in the long-term growth potential of the investment itself.
While the volatile nature of Bitcoin will have it swing wildly up and down, the long-term growth potential is there.
Most retirement investors today are thinking about the long-term. This is what makes cryptocurrency ideal suited to a self-directed IRA in this regard. When you are talking about holding onto an investment for decades, Bitcoin can be a major asset in this area.
Avoid Capital Gains Taxes
Because of the tremendous gains that Bitcoin has achieved in recent years, many investors have become worried about capital gains taxes. After all, taxes can really eat into investment profits.
When you put Bitcoin in a self-directed IRA, many of these issues can be averted. Capitals gains taxes may not even become a worry at all.
3 Cons of Putting Bitcoin in IRA
It is important to consider the potential risk behind any investment, and that is especially essential when planning for your retirement.
When it comes to cryptocurrency, there are some additional cons that you want to think about before deciding to use your self-directed IRA to buy any Bitcoin. Following is a summary of three of those disadvantages.
Bitcoin is Extremely Volatile
While every investment is going to have peaks and valleys, Bitcoin tends to have more than its fair share of both. It can go up by 1,200% today only to decline by 1,500% tomorrow. These wild swings are what keep many people from investing in cryptocurrency.
Bitcoin has achieved record prices in recent years, but its prices have plummeted almost overnight at times as well. These wild swings may make it an ill-advisable investment for an IRA if you are approaching retirement age in a few years.
Bitcoin is Still Too New
For many people, cryptocurrency is still too new of a concept to bank one’s retirement on. This line of thinking may have some merit. This is a revolutionary form of currency that has not yet proven its staying power.
While it has been around for more than a decade, it has still been unable to become the dominant currency in any corner of the world.
It was only recently that one country made Bitcoin a legal form of currency. To date, no other country has followed suit. However, time will tell where this disadvantage heads.
If Bitcoin continues to make traction on the global stage, then it could turn into another potential investment that can do well within a self-directed IRA.
There Are Hefty Fees Involved
Another disadvantage to putting Bitcoin in an IRA involves the fees that are charged. They are much higher than those that are associated with buying traditional stocks or bonds.
This is because Bitcoin must be purchased through a custodian and put into a self-directed IRA. Just opening up such an account with $50,000 can cost as much $6,000 in fees alone.
Final Thoughts
Now that you know more about the pros and cons of investing in Bitcoin IRAs, you are in a better position to make your own decision. It is important to consider your own finances and situation before deciding to make any investment.
Talk it over with your family and financial advisor before making any firm decision one way or the other.
