Cryptocurrency and Bitcoin IRA’s have become a popular way to invest in the emerging cryptocurrency asset class while simultaneously reaping some tax benefits that are commonly associated with retirement accounts. In this guide, we’ll discuss bitcoin IRA’s in depth and take a look at their advantages and disadvantages as well as compare and contrast some of the leading companies providing cryptocurrency IRA services.
Bitcoin is the first cryptographically secured peer-to-peer currency of its kind. For the first time ever, cryptocurrencies like bitcoin allow two unknown parties to transact peer-to-peer with one another without the need of a third party to verify and legitimize their transactions. If you’d like to learn more about cryptocurrencies and bitcoin, there is a plethora of information on the web that we won’t cover in this guide here. However, we still encourage you to dive down that rabbit hole and learn more.
An IRA is an investment account that allows individuals to save for retirement with tax-free growth or on a tax deferred basis. A bitcoin or cryptocurrency IRA isn’t substantially different from a traditional one. However in a crypto IRA, the underlying assets that you are investing in are cryptocurrencies like bitcoin, instead of stocks/ bonds/ or other investments.
It isn't common knowledge that you can put a variety of alternative assets in your retirement account, such as real estate, precious metals, private placements and more. This is allowed under the rules of self-directed IRAs, which only exclude certain types of investments. When the IRS designated digital currencies as personal property in 2014, Bitcoin and other digital currencies immediately became eligible for placement within a self-directed IRA.
For tax conscious individuals, a bitcoin IRA can be attractive as you don’t trigger taxable events when trading within these accounts like you normally would when trading on a normal cryptocurrency exchange. All of your income is tax deferred or tax-free (in the case of a Roth IRA).
There are multiple cryptocurrency IRA platforms out there today. We encourage you to do your own research when deciding which platform is right for you; however, we’ll take a look at some of the market leaders below.
BitIRA is a top provider of bitcoin IRAs. Similar to others on this list, you can easily sign-up for an account and start saving your bitcoin or other cryptocurrencies in a tax deferred fashion.
BitIRA provides end-to-end insurance for your cryptocurrencies stored on the platform. In addition, they have a cold storage option for custody that leverages multi-signature technology so that your crypto can be kept on your own device. This helps keep your private keys safe.
BitIRA is also fully IRS compliant from a tax perspective.
BitIRA works with Preferred Trust Company (PTC), a licensed trust custodian that specializes specifically in self-directed IRAs. As your custodian, PTC knows precisely how to manage the administration duties of your retirement account in order to ensure that your IRA remains IRS-compliant. Additionally, all cash deposits with PTC are insured up to $250,000 per account.
Rocket Dollar allows you to open a self-directed IRA or self-directed solo 401K allowing you to invest in a variety of assets within your retirement account—cryptocurrency included. This can be attractive for advanced investors who want complete control over their retirement account with the ability to invest in additional assets like real-estate or in startups.
"Not your keys, not your crypto," is not a problem with Rocket Dollar. You have the ability to control your storage options, and you can use your Rocket Dollar LLC checking account to buy either a hot or cold wallet, as well as physical storage devices.
When compared to others on this list, the Rocket Dollar price is very competitive. For a checkbook IRA, you simply pay $360 for setup and a $15 flat monthly fee. There are no AUM fees. From here, your chosen platform sets trading, custody, and burn fees.
One thing to be aware of is that Rocket Dollar is not built for a brand new crypto investor. At the time of this writing, there isn’t a crypto trading portal within the Rocket Dollar dashboard.
Bitcoin IRA was one of the first companies to start providing a turn-key solution allowing investors to trade and invest in cryptocurrencies like bitcoin within an IRA account. The company has the largest user base in the industry which is a testament to its ease of use. When using Bitcoin IRA, you are actually using a number of different solution providers to help facilitate your IRA. Bitcoin IRA connects all of these providers to give you the user a one-stop shop to enable your IRA.
Included in these partners is Kingdom Trust IRA, BitGo, and Lloyd’s of London. By connecting all of these providers, Bitcoin IRA is able to give you a secure platform for storing, insuring, and facilitating your IRA.
With BitcoinIRA, you can invest in multiple different cryptocurrencies including Bitcoin, Ethereum, Ripple, Litecoin, Bitcoin Cash and Ethereum Classic.
One thing for investors to be aware of with Bitcoin IRA is its high transaction and ongoing account fees when compared to others on this list.
iTrust Capital offers one of the lowest cost crypto and bitcoin IRA platforms. In addition to crypto, you can also trade physical gold in it’s IRA/401K accounts.
According to iTrust, their fees end up costing as much as 90% less than other IRA providers. Many Cryptocurrency IRA companies charge up to 15% transaction fees. Many physical Gold IRA companies charge a 30% spread. iTrust takes a different approach and only charges 1% on transaction fees.
Cryptocurrency assets are custodied with Curv, a multi-authorization cryptocurrency wallet management solution enabling financial institutions to safe-keep their funds with unparalleled security.
Physical Gold is stored in the highly secured vaults at the Royal Canadian Mint.
In most countries (US included), cryptocurrencies are treated as property for tax purposes, not as currency. Just like other forms of property—stocks, bonds, real estate—you incur a tax reporting requirement when you sell, trade, or otherwise dispose of your cryptocurrency for more or less than you acquired it for.
In this sense, cryptocurrency trading looks similar to trading stocks for tax purposes.
For example, if you purchased 0.2 Bitcoin for $2,000 in May of 2018 and then sold it two months later for $3,000, you have a $1,000 capital gain. You report this gain on your tax return, and depending on what tax bracket you fall under, you pay a certain percentage of tax on the gain. Rates fluctuate based on your tax bracket as well as depending on whether it was a short term vs. a long term gain. This applies for all cryptocurrencies.
These are the reasons why investing through an IRA can be so powerful. You can avoid a lot of the tax consequences that exist when trading crypto normally.
Cryptocurrency tax software like CryptoTrader.Tax is used by tens of thousands of crypto investors to automate the entire crypto tax reporting process. It’s like TurboTax for cryptocurrency investors.
Simply connect your exchanges and import your transactions history. The app will handle all of the number crunching and generate auto-filled tax forms for you with the click of a button. Import these forms into your preferred tax filing software like TurboTax or TaxAct or give them to your tax accountant.
Getting started with your crypto taxes is completely free with CryptoTrader.Tax.