The rise of Bitcoin has created a lot of interest in cryptocurrency, as investors explore the advantages of investing in self-directed IRA accounts. After all, everyone wants to feel as though their future is financially secure.

This is where Bitcoin IRA comes into a play — a revolutionary way to invest in your retirement.

Whether you’re interested in the perks associated with Bitcoin IRA or are concerned about the risks involved, this is the guide for you.

What Is Bitcoin?

Just as a refresher, Bitcoin (BTC) is a global currency that works the same, regardless of where you live. All currency is electronic cash, distributed from one party to another in a peer-to-peer fashion. Since there is no need for a third-party financial institution, many are beginning to see value in this emerging currency.

In order to obtain Bitcoin, you can either purchase it, trade for it, or mine it.

Once you have Bitcoin, you’ll want to transfer it to a Bitcoin Wallet and once you accumulate enough, cold storage is highly recommended. In this case, your Bitcoin reserve will be kept offline and is intended for long-term investment use.

What Is Bitcoin IRA?

An IRA stands for an individual retirement account, which allows individuals to put away money for retirement in a way that is advantageous — mainly in terms of tax benefits. In the case of a Bitcoin IRA, investors are given an opportunity to diversify their retirement funds.

While the evolution of a Bitcoin IRA is fairly new, self-directed IRAs are not. In fact, they have been around since 1974 — when the government created IRAs. These types of IRAs allow you to hold real estate, gold, and other nontraditional assets, including virtual currencies.

These are often referred to as alternative assets, which are separate from stocks and bonds. Although each scenario is unique, most advisors recommend that up to 25 percent of their clients’ financial portfolio contain alternative assets.

The reason why Bitcoin IRA is so interesting is based on the fact that cryptocurrencies have the capacity to be transferred and managed in unique ways. Although there are a number of benefits, the most noteworthy is the extra level of security involved.

Investors are also intrigued by the fact that as an investment, you will gain greater control. This reduces the risks associated with a third-party, especially in regards to fraud or mismanagement. This is based on unique private keys and in this case, typically involves cold storage.

How Does a Bitcoin IRA Work?

Unlike traditional printed money, which can be subject to inflation, the Bitcoin supply is capped at 21 million. In fact, it is said that the network will mine the final coin in the year 2140. Although this currency is capped, the adoption of Bitcoin continues to grow. Based on the number of confirmed transactions per day and the diminishing number of new Bitcoins, the value of this currency is anticipated to continuously grow. For example, in 2013, the average daily number of transactions was around 45,000. However, in 2018, that number spiked to around 300,000 transactions per day.

In terms of an IRA, a Bitcoin IRA is unique in that it is a self-directed IRA that allows you to invest Bitcoin, in comparison to traditional assets, such as bonds, stocks, mutual funds, and certificates of deposits (CDs). Although a Bitcoin IRA comes with risks (just like any other investment), it is currently considered to be a high-growth potential investment that will allow you to diversify your portfolio.

Pros and Cons of a Bitcoin IRA

Like any long-term investment, there are many variables to consider. In the case of Bitcoin, or any cryptocurrency for that matter, there are still many grey areas, especially in regards to the public’s knowledge on the subject itself.

If you’re wondering whether or not a Bitcoin IRA is for you, here are some of the pros, as well as the cons:

PROS

  • Significant tax benefits, as long as your Bitcoin is granted under Section 1256. In this case, 60 percent of your income will be taxed at long-term capital gains rates while the remaining 40 percent will face short-term rates.
  • As discussed, if you’re an investor, a Bitcoin IRA can enhance portfolio diversification.
  • Currently, there is long-term growth potential associated with Bitcoin and cryptocurrency in general.
  • It is a global currency which works the same around the world

Cons

  • Fees. Since cryptocurrency is taxed as a property, the fees are higher. Plus there are unique security and custody requirements.
  • Still extremely volatile and viewed as a speculative investment
  • Impossible to predict if Bitcoin will be around in the long term future
  • Has no underlying valuation metrics

Since retirement plan sponsors are responsible for the investment types offered, it is not likely that the workplace will see cryptocurrencies as a retirement plan in the near future. This is due to the still volatile nature of cryptocurrency and that they are currently not regulated. It is recommended that alternative assets such as Bitcoin and other cryptocurrencies do not exceed 5 to 10 percent of the overall portfolio.

How Do I Begin?

There are two options in terms of setting up your Bitcoin IRA. The first is doing it yourself, which will require some background knowledge — and the second is partnering with an expert company, such as those listed below.

If you’d like to set up a Bitcoin IRA yourself, you’ll want to ensure that everything is IRS-compliant. There are a number of limitations and prohibited transactions to be mindful of, which is why you should seek a professional opinion if needed.

First of all, you will need to establish a self-directed IRA, in addition to a limited liability company (LLC). Your LLC will then act as the entity which buys and sells Bitcoin specifically for your IRA. It is important to note that if you do decide to go with the do-it-yourself approach, you will bear significantly greater risks in regards to theft and compliance — especially in regards to long-term investments.

Owning bitcoins in an IRA takes a lot of special planning. This is because most individual retirement account custodians will only accept assets which are considered mainstream. These also include money market funds and certificate of deposits (CDs).

Comparing Bitcoin IRA Companies — Here’s What You Need to Know

While Bitcoin IRA was the first company to offer such services, there are now a number of options — here’s how they compare.

Bitcoin IRA

Being the first company to offer this unique investment opportunity, BitcoinIRA.com continues to be the largest company in this space. On both Facebook and Google, they have accumulated a lot of positive attention and strong reviews. In this case, you will benefit from a full-service investment solution.

Although you may be solely interested in Bitcoin, this company will also help you invest in Litecoin, Ethereum, Ripple, and much more. Whether you’d like to roll over funds from your existing IRA, 401k, 403b, or other retirement plans, they can help you do just that. While there are a lot of benefits associated with Bitcoin IRA, the majority of investors are pleased with the level of expertise they receive. Your investment will also be protected by a three-keyed cold storage wallet.

BitIRA

This American company is often referred to as the most secure option for digital currency. In fact, they are the first to offer cryptocurrency IRAs that are fully-insured against theft, hacks, and fraud. Although they have not been around as long as Bitcoin IRA, BitIRA can be beneficial when you’re aiming to achieve tax-deferred growth in relation to a preexisting 401k.

BitIRA takes care of everything for you. They manage the administrative duties of a self-directed IRA. They execute all purchases and exchanges in your Bitcoin currencies. They also secure a person’s digital currency with an encrypted Bitcoin wallet. While your IRA is self-directed, you must, by law, have a certified custodian manage it as well. This custodian will protect your digital assets against theft or any other type of loss and makes sure your account is in compliance with all security standards. They also offer to store assets in a monitored cold storage vault.

BitIRA’s custodial partner is Preferred Trust Company. Preferred Trust company is split into four teams to better manage their custodial duties. These teams are the Customer Service Team, Transfer Team, Investment Team, and Accounting Team. The transfer team transfers funds while the accounting team does all of the accounting work for you.

Regal Assets

Known for their involvement in gold and metal IRAs, Regal Assets has expanded into the world of cryptocurrency. In that sense, they are widely recognized and experience in regards to IRAs.At this time, they offer a number of programs, including their Regal Cryptos program and their Regal IRA program — which allows you to invest in both precious metals and digital assets. They are a member of the Forbes Finance Council and they separate metals from cryptos to ensure better safekeeping. Regal Assets strictly focuses on products that the individual investor needs, rather than the products with yield higher fees and commissions. They also educate their clients and do not move forward until the client is completely comfortable making the investment.

When you decide you would like to invest in a Bitcoin IRA, be sure to do your homework. You not only need to know the current information about Bitcoin IRAs, but you also need the right team. The right team will make you feel comfortable and should never push you into something you don’t feel comfortable investing. They should stand beside you and support you in every step of the process. Founder’s CPA has professionals who specialize in self-directed IRAs and can provide resources and referrals to help you get started.