What Is Bitcoin IRA? Advantages and Disadvantages?

LBank Exchange
5 min readJan 26, 2023


What Is Bitcoin IRA? Advantages and Disadvantages?

With the exponential growth of Bitcoin and other cryptocurrencies in the financial space, it is pretty easy to apply all various investment methods common in traditional finance to cryptocurrency. Individual Retirement Account (IRA) is a good example of these solutions. Although no recognized IRS company is designed for cryptocurrencies, Bitcoin IRA and cryptocurrency IRA are enhanced retirement tools for traders to secure and diversify their portfolios.

In 2014 the Internal Revenue Service (IRS) taxed cryptocurrencies as property, similar to the way stocks, bonds, or other investment types are taxed. Since then, traders have been able to put their crypto in IRA via a custodian. With the recent stock turmoil and crypto market meltdown, it is understandable if you are wondering about your IRA. This article is going to explain how to include Bitcoin in your IRA, as well as the advantages and disadvantages of having it in your portfolio.

What Is Bitcoin IRA?

As the name suggests, Bitcoin IRA is a self-directed trading platform that offers easy access to buy and sell Bitcoin and a few other large-cap cryptocurrencies within a tax-advantaged individual retirement account (IRA). Similar to a traditional IRA, it’s a savings plan available to anyone who has a taxable income, but they are subject to specific eligibility laws. An individual can make contributions only from compensation income, which can include wages, salaries, fees, tips, bonuses, commissions, taxable alimony, and separate maintenance payments.

A Bitcoin IRA allows you to invest in commodities like gold and silver, and digital currencies are prohibited for traditional IRAs. Although it is pretty volatile, investing in BTC IRA may boost portfolio performance as well as diversification. Custodians in charge of such Bitcoin IRA accounts are always platforms that enable digital currencies as alternative assets. However, the custodians may not owe the investor any fiduciary duty concerning such investments.

Beyond BTC IRA, users can also invest in other cryptocurrencies such as Cardano (ADA), Ethereum (ETH), or Ripple (XRP) for retirement purposes.

How Do Bitcoin IRAs Work?

Pretty much like mutual funds in conventional IRAs, Bitcoin IRA allows you to invest money in cryptocurrency. With both traditional and Roth self-directed IRAs, users can harness the required tax advantages and invest their funds in cryptocurrency.

If you are 50 years of age or more, you encounter the same $6,500 or $7,500. You are also able to roll over funds from a regular IRA or 401(k) to a self-directed IRA.

While self-directed IRAs are pretty much similar to regular IRAs, they are slightly different in terms of investment methods. These methods are broken down into three components:

  • A custodian: securely stores your IRA funds and ensures your account complies with the existing regulations set by both the IRS and the government. An example of this is the role banks and other financial institutions typically play with normal IRAs.
  • An exchange: these are regular crypto exchanges that manage your cryptocurrency trades and allow you to buy and sell Bitcoin, Ethereum, or other cryptocurrencies.

A secure IRA platform essentially combines the above two functions and securely stores your investments. Most Bitcoin IRAs companies include proprietary secure storage to prevent your crypto assets from malicious acts.

Self-directed IRA providers, for example, a Bitcoin IRA platform, can partner with regular crypto exchanges to offer access to purchase Bitcoin IRAs.

Advantages and disadvantages Bitcoin IRAs

Bitcoin IRAs have several advantages, including portfolio diversification beyond specific assets and stocks, which can safeguard your investments. While IRAs can provide huge benefits for investors, there are still a few things to consider, such as volatility risks.

Advantages of Bitcoin IRAs

  • Diversification

Investing in multiple assets, including Bitcoin IRAs, will protect your investments against potential market downturns.

  • Long-term benefits

Since Bitcoin and other crypto assets are proposed to increase in value in the future, it becomes a suitable investment option for IRA retirement plans.

  • Avoid capital gain taxes

The ones who invest in Bitcoin can avoid the heavy capital gain taxes that are included by the cryptocurrencies in a few kinds of retirement accounts. Furthermore, since taxes are only paid when you sell your assets, IRA exempts you from paying taxes.

  • Inflation proof

Due to the fixed supply of BTC, investing in Bitcoin IRA exempts you from inflation. Unlike fiat currencies, new Bitcoin assets cannot be created on demand. This offers optimal security for users’ retirement assets from inflation.

Disadvantages Of Bitcoin IRAs

There are various disadvantages of cryptocurrency IRAs, and most of them include such as market volatility, high transaction costs, as well as maintenance fees, trading fees, and custody fees.

  • Contributions

There is a constant annual contribution with a minimum amount of $6,000 or $7,000 for those over 50 years old or above, respectively. This essentially prevents potential investors from “hodling” BTC.

  • Not readily available

A lot of cryptocurrency exchanges do not support Bitcoin IRAs.

  • Does Not deduct losses

Since investing in a Bitcoin IRA is tax-free, losses cannot be reduced from your crypto assets.

  • Penalty costs

Furthermore, IRA service providers may impose a penalty fee on your investments for unripe withdrawal — making it a bit complicated.

How To Open A Bitcoin IRA

Choosing a service provider that supports Bitcoin IRA or self-directed IRA service providers involves you submitting your personal entails such as identity documents, passports, home addresses, etc.

Next is buying Bitcoin. You should always keep a check on any additional fees imposed by third parties. You can buy Bitcoin by either depositing or transferring bitcoin to your IRA account. You may use the account to trade Bitcoin, invest in other crypto assets, and perform further services offered by the custodian.

Asides from Bitcoin IRA, other cryptocurrency IRAs include Ethereum and other cryptocurrencies. Practically, you may use an IRA Bitcoin account to invest in, hold, and trade BTC as well as other prominent cryptocurrencies, including Ethereum (ETH), Bitcoin Cash (BCH), Litecoin (LTC), Ethereum Classic (ETC), etc.

Wrapping up

Cryptocurrency offers different ways to make money. However, before considering investing in a Bitcoin IRA, it is essential to gain tremendous insights about the specific self-directed providers and the crypto asset you are willing to buy. It is also vital for you to take note of the market volatility of cryptocurrencies like Bitcoin before investing in an Individual Retirement Account (IRA).

Disclaimer: The opinions expressed in this blog are solely those of the writer and not of this platform.