Can you build a better retirement fund with Bitcoin IRA?

Companies like Bitcoin IRA could be a solution for building better retirement funds by investing in digital assets and benefiting from the tax advantages

Bitcoin IRA is a company that specialises in offering crypto for individual retirement accounts. Simply put, people can buy and sell cryptocurrency directly inside their retirement accounts to increase returns.

Bitcoin IRA and other similar service providers claim to be offering an investment package that includes the best of two worlds. End users benefit from all the tax advantages of a traditional IRA and get high returns from investing in digital assets.

But is this really the case with the massive price fluctuations in the cryptocurrency market? Bitcoin has lost $18 billion in market cap in the last month alone. The coin’s price fell to almost $9,000 from over $13,000, and some analysts are preparing for further falls. Is this the kind of scenario you’d like to worry about when saving for retirement?

Tax advantages of IRAs

IRA stands for “individual retirement account” and is the most common form of individual retirement plan in the US. An IRA is different from a 401k as it allows you to invest in a wide range of asset types, including digital and crypto-assets.

It also provides tax advantages since it enables users to invest their money and pay the corresponding taxes when they retire. So, Bitcoin trading through an IRA is quite different from trading on cryptocurrency exchanges.

That’s mostly due to the fact that Bitcoin IRA is a custodial account. You can’t manage it yourself – it requires a custodian because of its tax-advantaged status. The custodian is a certified institution that watches over your investments to make sure they’re approved by the Internal Revenue Service (IRS). The organisation also does the reporting and takes care of the paperwork requested by the tax authority.

Even if you go for a self-directed IRA and take care of all the investments yourself, you’ll still need a custodian to make sure you respect all the applicable laws.

The challenges of investing with Bitcoin IRA

The tax benefits may sound appealing in the broader context of the potential returns associated with investing in cryptocurrency. However, there’s a price to pay when looking to consolidate your retirement fund with Bitcoin IRA.

Key factors you can’t ignore when investing your retirement money in cryptocurrencies are the risks and high fees.

Is cryptocurrency a reliable investment for your retirement?

Stories about people who became millionaires thanks to Bitcoin have made many people dream about early retirement in comfortable conditions. But is it possible to rely on Bitcoin IRA and still sleep well, given the volatility of cryptocurrencies?

It depends on how much of your funds you invest in cryptocurrency. No investment is set in stone, but digital assets are by far the most hazardous in the market right now. So, it may be wise to divide funds and allocate just a small portion toward cryptocurrency products.

In an interview with Forbes magazine, Chris Kline – Bitcoin IRA’s COO – suggested that customers should invest somewhere between 5% to 20% of their retirement funds in cryptocurrency. However, that was at the beginning of 2018 before Bitcoin saw significant price corrections.

Diversity in your IRA reduces risks, so investing a small part of your funds in crypto shouldn’t put your retirement in any danger. The potential long-term gains may be worth the risk after all.

Why are Bitcoin IRA fees high?

If you’re already investing in cryptocurrency, you know that trading fees come in many forms, but they aren’t usually restricting. However, things change when setting up a Bitcoin IRA account.

From initial setup to custody and annual maintenance fees, Bitcoin IRA can be pretty expensive – even though Bitcoin IRA and companies like it have reduced costs hoping to increase cryptocurrency adoption.

Moreover, many funds have partnered with insurance companies to increase the value for money of their services and convince more people to place their retirement money in cryptocurrency.

Another cost to keep in mind is related to premature withdrawals. If you need money ahead of your retirement, you risk being taxed at the rate of capital gains. It happens with any form of assets, but when you add that up to an already high fee, it may become an enormous expense.

The bottom line

Investments in Bitcoin and other cryptocurrencies aren’t for everybody. Companies like Bitcoin IRA provide discounts and personalised assistance to attract investors, but the number of people who choose this path is still small – Bitcoin IRA has around 4,500 clients, for example.

Despite incentives, many investors don’t feel ready to enter such a volatile space. The crypto environment requires extra attention against scams and cybercrime. People who put their retirement money in crypto should stay vigilant and always up to date on the latest trends to make the most out of the funds invested.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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