With an excellent record of value appreciation, Bitcoin is viewed by many as a great IRA option. However, I understand if you are hesitant since Bitcoin is still relatively new, and can be a volatile form of currency.
The good news is that educating yourself about Bitcoin, and how it can be used for an IRA, will give you a better idea of whether or not this investment option is for you. While it is true that Bitcoin can be a lot different from more traditional IRA options, there are some similarities as well.
Let’s go over the most important things that you’ll need to know in order to make a wise decision when it comes to investing in a Bitcoin IRA.
High Volatility
Bitcoin is extremely volatile. This means that its value tends to swing up and down rapidly in the short term. Investing in a volatile commodity or currency may not be for some people since seeing your investment lose much of its value before swinging back up again can be incredibly stressful.
Fortunately, Bitcoin has shown a mostly upward trend over the years. As mentioned before, it has had excellent appreciation rates and continues to do so.
Even big companies like PayPal and Square are heavily investing in Bitcoin, as well as other billionaires. This is a good sign that Bitcoin will be a stable investment in the long run.
Bitcoin IRA Services
Unlike many IRAs where you only have to interact with a single entity in order to set up and fund your account, investing in a Bitcoin IRA is a little more complicated since you’ll be dealing with three principal entities. These entities are as follows:
- Bitcoin IRA service provider
- Self-Directed IRA custodian
- Wallet/Custody provider
The Bitcoin IRA service provider will be the main entity that you work with. They will take care of most of the work when you want to purchase Bitcoin and add it to your IRA or start a brand-new Bitcoin IRA.
The self-directed IRA custodian is exactly what its name implies: the custodian for your account. These entities can be trust companies, banks, or other institutions that have been approved by the IRS.
To invest in Bitcoin you need a digital wallet, and that’s no different when it comes to a Bitcoin IRA. Your wallet/custody provider basically holds your Bitcoin for you and allows you to have access to it. In most cases, your Bitcoin IRA service provider will have a deal with a specific wallet that you can use.
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Service Fees
We know that no one likes fees, but since you’ll be dealing with multiple entities concerning your Bitcoin IRA, you’ll also be dealing with multiple fees as well. Here is a list of some of the fees you can expect when investing in a Bitcoin IRA:
- Transaction fees
- Account setup fees
- Administrative fees
- Platform fees
- Cold storage fees
There are also trade fees in some cases as well. These can be as low as 1% per trade but might be larger depending on the situation. Trades tend to have minimum values as well.
Most of the time you will be expected to make an initial deposit of several thousand dollars when starting a Bitcoin IRA. This means that you will need to be fully committed to this investment.
Lastly, you will also be subjected to additional taxes and fees if you decide to withdraw all or part of your investment early. This is no different from an ordinary IRA.
401(k) and Rollovers
Since 401(k)s are a popular investment option, you may be wondering if you can use yours to purchase cryptocurrency. The answer is actually somewhat complicated. While some companies are beginning to see the potential of cryptocurrencies like Bitcoin as an investment option, others still don’t allow for cryptocurrency 401(k) rollovers.
Ultimately, this is a company-by-company decision and your options will be limited by who you work for. However, if you are self-employed, then you will find that there are more options available to you in regards to converting your 401(k) to Bitcoin.
How Safe is Bitcoin?
While no investment is ever guaranteed to work out, Bitcoin has shown itself to be the best performing asset in human history. In fact, Bitcoin has seen a rise in the value of over 1 million percent since 2009. Since its value is still increasing at an amazing rate, Bitcoin is a very solid investment option for retirement.
Despite this upward trend, there are investment options that are more stable than Bitcoin such as traditional IRAs. This may be a better option for those who want stability rather than volatility and high appreciation.
The main thing to remember is that no investment is guaranteed. However, by looking at the data you can make informed predictions based on past events. With this in mind, it is easy to look at Bitcoin’s upward trajectory and see that as of right now it is one of the best investments a person can make for their IRA, or otherwise.
How to Get Started with a Bitcoin IRA
Investing in a Bitcoin IRA can seem intimidating, but it isn’t as difficult as you may think. The first step is to decide which Bitcoin IRA Companies you’d like to use. There are many factors that go into making this decision such as fees, minimum deposits, and the quality of their customer support.
You should also remember that a Bitcoin IRA is a long-term investment. As with any other investment of this nature, I would strongly recommend that you take the time to carefully consider how much you’re willing to put in at the beginning, and how much you would like to end up with when it comes time to withdraw.
I would also recommend that you take the time to speak with representatives of the Bitcoin IRA service that you consider doing business with. They can explain to you all the things you need to know in order to make an informed investment decision for your IRA.
