Can I Put Crypto in my Retirement Account?

Written By Scott Kessman
Last updated September 7, 2021

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September 7, 2021

Simple. Thrifty. Living.

Investing in Bitcoin and other cryptocurrencies has been a rapidly growing trend over recent years. Most investors focus their interest in crypto mainly on traditional portfolio options. But many are also now wondering, “Can I start a cryptocurrency retirement fund?” The quick answer is yes, but there’s a lot to know before you do.

The cryptocurrency market is risky. Consider the following information before you plan your cryptocurrency retirement fund. You’ll improve your chances of a high-return retirement account.

The first question you need to ask yourself is whether it is even worth it to invest in crypto. The answer depends on how close you are to retirement. If you are planning on retiring within five years or less, crypto is not the ideal retirement investment option. Crypto investments can be very volatile. You’ll need to perform a lot more due diligence than you would with other types of retirement accounts.

Just a Small Part of Retirement

If retirement is still far into your future, you’ll have a long time and greater risk tolerance to manage the account. However, financial experts still recommend making crypto only a small part of your retirement strategy. It isn’t a good idea to rely on a retirement fund that only contains cryptocurrency.

It would be prudent to talk to a retirement advisor with experience in cryptocurrency. They can provide an in-depth consultation to aid you in creating a cryptocurrency retirement fund.

Employers typically offer traditional IRAs. You can also set up an IRA, Roth IRA and other retirement funds with a financial advisor. Many times, the option to add crypto to an employee-sponsored retirement account isn’t available. But you can do so through a self-directed IRA. This type of IRA also lets you invest in alternative assets, such as precious metals.

Using Your IRA

Adding crypto to a self-directed IRA is relatively easy. Instead of mutual funds, you are investing in various offerings of crypto. You can even choose between traditional and Roth self-directed IRAs. These have the same annual contribution limits as a traditional IRA.

If you are self-employed, you contribute more by selecting a SEP, Simple IRAs or solo 401(k)s. Regardless of which cryptocurrency retirement fund you choose, you’ll need to do a little work with it.

While not every retirement fund featuring crypto as an investment works the same, the following is typical for many of them:

A custodian will play the role of the bank by being responsible for the safekeeping of your account. The custodian must make sure the account complies with IRS and government regulations.

You’ll likely use a crypto exchange to manage your trades. This works in a manner similar to the stock market. The exchange handles the active trading of many types of cryptocurrency.

Finally, you’ll need a secure storage solution for your cryptocurrency. The IRA account often provides this, but not always. Be sure to protect your account, since bitcoin theft is a common activity among savvy cybercriminals.

There’s a lot to be gained by adding crypto to a retirement fund. But there’s also a lot of risk. Consider the following to help you make an informed decision about investing in crypto:

More Diversification in Your Portfolio

Adding crypto to a retirement account with stocks and bonds allows for more diversification in your portfolio. Crypto can facilitate a strong retirement fund and aid in protecting your balance.

Possible High Returns

Crypto often delivers large returns. This makes it especially attractive as both a short- and long-term investment. A hands-on investor with a firm knowledge of the crypto market can conduct trades that work largely in their favor.

However, experts recommend only adding a small amount of crypto to a retirement account. The volatile nature of crypto can also result in a loss. But a minor loss won’t do much harm to the value of a diversified IRA.

Tax Advantages

Cryptocurrency retirement funds such as traditional or Roth IRAs hold significant tax advantages over other retirement accounts. By law, you must pay a capital gains tax on any crypto trades that result in a profit. Because you can engage in a multitude of crypto trades, it may be difficult to keep track of the numbers. However, you won’t pay taxes on gains so long as the funds remain in your retirement account.

More Fees

Unfortunately, trading in crypto means you will likely face more fees as well. Thoroughly read the account details and ask about the fees before making a crypto investment. Setup and management fees are just some fees you could be responsible for.

More Risk

As mentioned above, there is a lot of risk involved in making crypto investments. If you can stay with a crypto retirement fund for the long haul, it may be worth it. But if you are close to retirement, it’s a good idea to stay away from such a risky investment.

Trading Limitations

You could face limitations on which currency exchanges you can use. This depends on which company you choose to set up and manage your IRA. If you have an exchange you like working with, make sure your provider allows the exchange.

Learning Curve

Getting started with crypto investments involves a very sharp learning curve. Work with crypto a while before adding it to a retirement account.

Necessity of Other Retirement Accounts

You can have a cryptocurrency retirement fund that features only crypto. But then you’ll definitely want to maintain a traditional account as well. This ensures that your retirement planning is more diversified.

Can’t Deduct Losses

Traditional investment accounts allow you to file your losses as a tax deduction. You can’t do this with cryptocurrency retirement funds.

Starting a retirement fund early is always a good idea. Learning about the various stocks and bonds in your portfolio is even wiser. Take an active interest in how the funds in your account are gaining or losing. Then you can adjust as necessary to improve your retirement balance.

The same holds true with crypto, though you’ll need to be more proactive. Crypto value can change drastically without warning. Stay on top of things and research how the crypto market works to better your chances of a high return.

About the Author

Scott Kessman

I possess a strong 20-year background in marketing, digital marketing, and advertising. However, writing has always been a true passion of mine, and after working in corporate offices for many years, I turned my passion for writing into a full-time job. As a contract content writer for the last 12 years, I can craft engaging and informative content about a wide variety of subjects. I have also written and published two fantasy novels and a collection of short stories.

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