A crypto Roth IRA is one of the most appealing ways to earn tax-free returns.
You can buy Bitcoin and the hottest altcoins without paying taxes on your trades.
I show how this retirement account can be pivotal for your investment strategy.
Find a crypto IRA company to help you take control over your retirement savings.
What is a Crypto Roth IRA?
Sometimes called a Bitcoin Roth IRA, this is a self-directed IRA that lets you buy actual cryptocurrency.
You’re able to transfer your crypto assets to a personal storage wallet or convert them into dollars when requesting a liquidation.
You fund the account with after-tax contributions and make tax-free distributions.
As cryptocurrency can produce impressive investment returns, the Roth tax treatment dramatically reduces your tax liability versus a traditional tax-deferred retirement account.
Can you hold crypto in your Roth IRA?
A self-directed Roth IRA can buy Bitcoin and altcoins directly. You will open an account with one of the best crypto IRA companies.
The majority support 20 to 80 different tokens and have an IRA custodian to help store your keys for tax compliance.
Not paying capital gains tax on your earnings is the best advantage of Roth accounts. For instance, your trades are not tax reportable like a non-retirement account.
Additionally, you pay taxes during the contribution year instead of on the distribution amount like traditional IRAs.
| Account Type | Eligible Investments |
|---|---|
| Self-Directed Roth IRA | Direct ownership by cryptocurrency tokens with private key access |
| Brokerage Roth IRA | Indirect ownership only via crypto-linked stocks, mutual funds, ETFs, and futures |
Cryptocurrency is available through tax-advantaged IRAs because the IRS classifies it as a digital asset.
Moreover, since 2014, the tax code has treated crypto as property instead of currency or collectible, similar to precious metals and real estate.
Here is how tax-advantaged retirement accounts store crypto:
- Buy with tax-advantaged dollars: You must buy supported cryptocurrencies with your Roth balance. You cannot transfer existing crypto holdings unless they are already in an eligible retirement account.
- Multiple keys: IRA providers use a multi-signature wallet consisting of three different keys that your plan custodian safeguards. You don’t have to worry about losing them and the custodian can help recover your crypto if the provider closes.
- Offline “cold storage”: Your coins remain in an offline storage vault instead of on the trading platform, where they can be easily traded or stolen during a data breach. You’re still able to easily trade 24/7.
- Custody insurance: Your Roth IRA Bitcoin qualifies for custody insurance. You can receive reimbursement in the event of criminal loss, theft, or misuse.
- Regulated trust companies: IRA providers usually partner with longstanding self-directed IRA custodians with years or decades of experience. These companies adhere to strict regulatory standards and verify your crypto coins are properly stored.
It’s standard practice for crypto IRA custodians to store your crypto keys in a cold storage vault.
You won’t need a hardware wallet, although a handful of providers, such as Unchained Capital, let you hold up to two of the three private keys on a personal device.
Pros & Cons
Here are the most prominent perks and disadvantages of holding Roth IRA crypto rather than a trading account or indirect exposure through a brokerage IRA.
Pros
- Tax-free withdrawals: The best crypto tokens have substantially more upside potential than legacy asset classes. Not having to pay taxes on your potential earnings boosts your net worth and retirement spending power.
- Direct ownership: You own actual crypto assets that you can transfer to a personal wallet instead of selling for fiat currency.
- Portfolio diversification: Cryptocurrency is another way to diversify your portfolio and not rely entirely on the stock market to fund your retirement dreams. More investors and financial planners are adding Bitcoin and crypto to their asset allocation.
- Extensive security: IRA custodians use cutting-edge security practices, such as offline storage and multi-signature wallets to protect your keys from hackers. Although unlikely, you can also recover your keys if your IRA provider permanently closes.
- 24/7 trading window: Most platforms let you trade anytime to pinpoint the ideal entry or exit price as cryptocurrency values constantly change.
Cons
- Small annual contribution limits: IRAs have lower annual contribution limits than 401(k)s. Additionally, the yearly ceiling combines stock and crypto IRA funding, meaning you may have to be highly selective about where you invest your retirement dollars.
- Five-year wait: Even if you’re 59 ½ years old—the eligible retirement age—new Roth IRAs must be open for at least five years before making penalty-free withdrawals.
- Potential account fees: Self-directed IRAs are more likely to charge setup and ongoing account service fees than brokerage IRAs. Thankfully, more crypto Roth IRA companies have switched to transaction-fee-only pricing.
How Do I Convert My Roth IRA to a Crypto IRA?
The most common funding method is to switch your current Roth retirement accounts into a crypto IRA.
Here is a step-by-step description of the process.
- Compare IRA platforms: Investment options, fees, minimums, and research tools vary between the best crypto IRA companies. Reading customer reviews and interacting with customer support helps you choose the best service.
- Decide which account to roll over: You can transfer an existing stock Roth IRA and even Roth 401(k)s. Platforms may also perform Roth conversions if you want to roll over tax-deferred accounts, although fees and taxes apply.
- Complete funding transfer: Most Roth IRA transfers take from one to three weeks. A crypto IRA specialist usually provides one-on-one support to expedite onboarding.
- Start trading: You can start buying Bitcoin and supported altcoins once your funds settle. Your crypto assets stay in a multi-signature wallet until you schedule a withdrawal.
- Keep stacking: Consider adding new funds up to your annual contribution limit. Additionally, you can transfer existing retirement balances in the future, which won’t count against your yearly limit.
Is a crypto Roth IRA a good investment idea?
A Bitcoin Roth IRA is the best way not to pay taxes on your crypto gains.
Instead, you pay taxes on the original contribution amount. However, you must be patient as you cannot make penalty-free withdrawals until retirement.
Be sure to compare platform fees, which erode your earning potential and penalize small balances if you’re just starting out.
This account type is also worth it when you prefer holding crypto keys to indirect crypto-related funds that only let you collect your returns in dollars.
FAQs
Which cryptocurrencies can I own a Roth IRA?
Your investment options vary by IRA provider but definitely include Bitcoin. Most offer between 20 and 70 altcoins with crypto IRAs. Brokerage IRAs only let you trade crypto-linked ETFs.
Does Coinbase offer a Roth IRA?
Coinbase only offers taxable trading accounts. Thankfully, Alto CryptoIRA uses the Coinbase platform so you can access 200+ cryptos with traditional or Roth tax benefits.
Where is my crypto held inside of my Roth IRA?
Current tax regulations require a third-party plan custodian to hold your keys. You can transfer your crypto assets to a personal wallet when making IRA withdrawals.
Find a crypto IRA company to help you take control over your retirement savings.
