Retirement Accounts for Investing in Bitcoin (IRA & 401(k))

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Today, we’ll introduce how to invest in cryptocurrency such as Bitcoin within retirement accounts. Please note that there are methods such as Roth IRA where you don’t have to pay capital gains tax, so let’s take a look.

As of 2024, cryptocurrency is still not fully matured as an investment product, and there are limited brokerage firms where you can directly invest in cryptocurrency. While Bitcoin ETFs have finally emerged, it’s expected that cryptocurrency will gain more legitimacy as an investment option in the future. However, as of 2024, there aren’t many retirement accounts available for investing in cryptocurrency.

Investing in Bitcoin through IRA

You can invest in cryptocurrency such as Bitcoin within a type of IRA account called a Self-directed IRA Custodian. The steps are as follows:

Choosing an IRA Provider

There are IRA accounts available for investing in Bitcoin such as:

Choosing the Account Type – IRA vs Roth IRA?

Once you’ve selected a provider, you’ll choose the type of account. There are Traditional IRA (contributions are tax-deductible and taxed at the current rate when withdrawn) and Roth IRA (contributions are not deductible at the time of contribution, and withdrawals are tax-free) options. You’ll need to compare your current income level with your retirement income level and imagine future tax rates to make the right choice. If you’re currently at your peak income, using a Traditional IRA to defer taxes might be better, or if you anticipate higher future income or tax rates and plan to invest in growth stocks or financial products like cryptocurrencies with significant capital gains, then a Roth IRA might be more suitable.

Depositing Funds and Purchasing Bitcoin

Next, deposit funds. You can either transfer from existing IRAs or 401(k)s, make new contributions, or rollover a 401(k) into an IRA.

Then, purchase Bitcoin in that account. Different providers may offer investments in various cryptocurrencies besides Bitcoin.

Holding Bitcoin Until Retirement

Finally, hold the purchased Bitcoin until retirement. IRAs have restrictions on withdrawals until a certain age, so you need to securely store Bitcoin during that time. Specific methods may vary by IRA provider, but websites often mention safe storage in offline cold storage.

Investing in Bitcoin through 401(k)

With 401(k)s, you can invest more money into retirement accounts compared to IRAs. However, there are fewer 401(k) accounts available for investing in Bitcoin or cryptocurrency. Additionally, unlike IRAs, 401(k)s are provided by employers, so employees can’t freely choose providers individually, which can be inconvenient. However, some 401(k)s do allow investments in Bitcoin. Also, for small business owners or entrepreneurs, using a Solo 401(k) allows investing more money into cryptocurrency like Bitcoin compared to an IRA.



Is Bitcoin a Viable Option for Retirement Fund Investment?

Above, we introduced retirement accounts in the United States where you can invest in Bitcoin.

However, cryptocurrency like Bitcoin is highly volatile and a high-risk financial product. Therefore, there remain doubts about whether it’s suitable for managing retirement funds, which are crucial for retirement.

The mainstay of retirement accounts is investing in relatively stable products like stock index funds, and it might be best for young people who still have a future and are willing to take risks to only add surplus funds they can afford to lose to their portfolio