At present, only some 401(k) providers allow clients to purchase cryptocurrency within their retirement accounts; these tend to be self-directed IRA providers.
These companies abide by the same custodial rules and benefits of traditional IRAs, such as dollar cost averaging and advanced trading tools, yet do present their own set of risks, including price volatility and low customer satisfaction ratings.
IRA Custodians
Cryptocurrency IRAs offer investors a way to diversify their retirement accounts through cryptocurrency investment. But because cryptocurrency values can fluctuate quickly, investors should only consider creating one after carefully considering their investment goals and risk tolerance.
IRA custodians offer services to support account rollovers, contributions, distributions and alternative asset custody including real estate, precious metals and commodities as well as promissory notes, private placement securities and tax lien certificates – however these custodians may not investigate or validate all investments held within self-directed IRAs.
When selecting a custodian, carefully consider their fees, servicing times and customer service. Be sure to verify all information provided to them from you such as prices or asset values – this can be particularly important given alternative investments are often difficult to value. It would also be beneficial if they offered insurance against losses as well as single point of failure protection and third-party risk protection measures.
IRA Fees
Bitcoin and cryptocurrency investments offer investors a great way to diversify their retirement portfolio beyond traditional assets, but it’s essential that investors understand how these platforms charge fees that impact your return.
Many IRA providers require at least $3,000 in funds to open an IRA, and may charge one-time service fees, transaction fees and monthly storage fees in addition to possible wire fees for domestic or international transfers.
While alto and Rocket Dollar provide low minimums and competitive rates, their fees can be prohibitively expensive. On top of transaction fees, these companies impose one-time setup and trading fees of 2% each which could significantly cut into your profits; making these providers unsuitable choices for a crypto IRA. Furthermore, these firms do not support tax loss harvesting which is one of the key advantages offered by taxable investment accounts.
IRA Taxes
Bitcoin IRAs offer tax benefits similar to traditional retirement accounts; however, each investment comes with its own set of risks and requirements.
IRAs must abide by strict IRS rules regarding prohibited transactions, while cryptocurrency prices can fluctuate quickly, potentially having a dramatic impact on savings accounts.
Self-directed IRAs that allow crypto investments are known as self-directed IRAs (SDIRAs). Companies such as BitIRA, Equity Trust and Bitcoin IRA make it simple for people to add cryptocurrency investments to their portfolio.
These companies provide various services, from supporting retirement funds (rollovers from traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, 403bs and 401ks), security storage and one-time setup fees to monthly custodial fees and transaction costs when assets are bought or sold; therefore it is wise for investors to carefully review each platform’s pricing structure prior to investing.
IRA Withdrawals
As with all retirement accounts, IRAs require you to pay taxes when withdrawing money; Bitcoin IRAs do not differ in this regard and must still follow all relevant IRA withdrawal regulations.
Cryptocurrency investors should be mindful that the IRS treats digital assets like property and when selling or trading them will incur Capital Gains Tax, making it harder to generate investment income with these investments as easily as with stock dividends, bond interest payments or real estate rents.
Self-directed IRAs provide investors who wish to invest in alternative assets with the ideal way of investing their cryptocurrency holdings in alternative assets. Swan Bitcoin IRA offers both traditional and Roth self-directed IRAs where your cryptocurrency holdings are stored in a custodial legal trust account at Prime Trust, an established U.S. chartered trust company. This reduces third party risk while eliminating risks such as exchange hacks or frozen accounts because you hold keys directly.
