Bitcoin Cryptocurrency IRA Account – How Does It Work?

Last Updated on 17th June 2022 by Jeffrey Camerda


Bitcoin Cryptocurrency IRA Account – How Does It Work?

A Bitcoin or Cryptocurrency IRA account is a self-directed IRA that allows you to invest in cryptocurrency such as Bitcoin. They are 100% legitimate and are a popular choice for people who want to diversify their retirement funds. Opening one is easy and you can rollover funds from an existing traditional IRA, 401k, or another qualifying retirement plan.

Bitcoin Cryptocurrency Self Directed IRA

A Bitcoin IRA is a Self-Directed IRA account that allows you to invest in cryptocurrencies such as Bitcoin, Ethereum, and Litecoin. Investing funds in digital currency is a very attractive option for individuals that want to diversify their retirement portfolios outside the conventional asset class.

Traditional IRAs only allow investors to invest in traditional assets such as stocks, bonds, and mutual funds. These paper assets are all tied to the global financial system and if a crisis strikes, the entire house of cards can come tumbling down. Your retirement portfolio could collapse in value overnight.  It’s time to consider digital currency for your individual retirement account.

Diversify Your Assets

Diversification of assets is critical when it comes to protecting your hard-earned funds against a sudden economic or political shock. It’s worth noting that you can hold both a Self-Directed IRA and a traditional IRA at the same time.

You can create a new Bitcoin self-directed IRA to invest in cryptocurrency and retain your existing traditional retirement account to allow you to invest in traditional assets.

mobile phone on a deskHow To Open a Bitcoin Cryptocurrency IRA Account

Opening a Bitcoin IRA account is easy. You will need to hire an account custodian to manage the IRA for you, this is a legal requirement. They will assist you in getting the retirement account set up and typically this can be done in just 24-48 hours.

Step-by-Step Walkthrough

Below we discuss how best to choose the right Bitcoin IRA company for you. The set-up process will vary from one custodian company to the next, but in general, you can expect to complete and sign the following documents:

  • Account Application Form: captures your basic details such as name, address, and social security number – first step in setting up your self directed retirement account.
  • Fee Schedule: details of the fees you can expect to pay for the management of your account.
    Account Holder Disclosure & Hold Harmless: outlines the responsibilities of the custodian and account holder.
  • Fund Transfer Document: complete this document to begin the transfer of funds from your old IRA account.  Pay careful attention to your savings tax free status.
  • Government ID: you will need to provide an ID to prove your identity, eg: driver’s license or passport.
  • Direction of Investment: When you wish to start purchasing cryptocurrency this document will capture the investment details and instruct your custodian.  Your custodian will purchase digital currency on your behalf.

rolling over to a bitcoin IRA

Rolling over funds from an existing account, such as a Roth IRA, to your new Bitcoin cryptocurrency IRA is a straight forward process. You can rollover a some of your funds or the whole lot if you prefer without infringing on the deferred tax status of your investment.

Also, it’s worth noting that you can simultaneously hold both a self-directed IRA for cryptocurrency investment and a traditional IRA for conventional assets. Your custodian will assist with rolling over any funds you may have in a 401k, 403b, 457b, Roth IRA, TSP, or Traditional IRA.

There are two ways of processing your rollover. It can be done as a Direct Rollover or an Indirect Rollover.

Direct / Indirect IRA Rollover

A direct rollover involves funds moving from the old account to the new account directly without you laying a hand on them. An indirect rollover involves a check being sent out to you in the post which you must then lodge in the new account.

If the check is not lodged into the new IRA account within 60 days, some heavy financial penalties will be triggered. To avoid this, it may be best to opt for a direct IRA rollover. As with any financial transaction, it is always advised to consult with a professional to avoid any unnecessary penalties.

investing computer screenHow To Buy Bitcoin with an IRA

The easiest way to buy Bitcoin with your new IRA is to instruct your account custodian to do it on your behalf. They are experts in the field and if you have chosen a good one, this is a service they will provide.

All you have to do is give them clear instructions of exactly what digital currency you want, and how much you wish to invest.

They will pick it up from there. The agreed amount of funds will leave your account and cryptocurrency will be purchased and stored securely in your self directed individual retirement account. Unlike some traditional assets, Bitcoin can be traded and acquired rapidly.

Processing Your Own Transactions

On the other hand, some people want to process cryptocurrency transactions themselves without going through an intermediary. This can be done by setting up what is called an IRA/LLC, (Individual Retirement Account/Limited Liability Company).  Forming an LLC is a simple process.  The easiest way to form an LLC is to hire an LLC formation company.  For a small fee they will process your filing.

This method allows the account holder to trade more freely, buying and selling Bitcoin without requesting a custodian to act on their behalf. It is a financial arrangement that gives full checking control to the account holder.

It affords limited liability protection similar to that of a corporation and gives full transactional control to the owner.

bitcoin ira planChoosing a Bitcoin IRA Custodian

There are quite a few cryptocurrency IRA companies out there. You should spend some time assessing the different options available and looking at the levels of service provided. When it comes to cryptocurrency it’s probably best to go with a specialist company with lots of experience in the field.

Ultimately, you need to choose the one that will work best for you. A good custodian will assist you with setting up the account, rolling over funds, purchasing cryptocurrency, and making sure all the legal paperwork and tax requirements are properly taken care of.

For more info on choosing a custodian, read our guide: Bitcoin & Cryptocurrency IRA Custodian Companies

Bitcoin IRA Custodian – What to Look For?

Below are some factors worth considering when weighing up your options.

  • Experience & Specialisation: You want to work with a group of professionals that have a wealth of experience in the cryptocurrency market and are highly proficient in the technical skills required to process Bitcoin transactions and manage cryptocurrency accounts. You should also ask questions about how your virtual assets will be stored and protected from potential hackers. The best companies offer secure, offline, cold storage.
  • Which Cryptocurrencies are Supported? Some of the crypto IRA companies only trade in Bitcoin. There are a wealth of virtual currencies out there and excellent investment opportunities exist in many of the alternative cryptocurrencies on the market. It is worth doing some research to see where the best growth potential exists. Then check to see which custodians support the virtual currencies you are interested in.
  • How Are Transactions Processed? Some account holders are not interested in regular trading. They want to buy a lump sum of cryptocurrency and leave it sitting there for the long term. Others, however, want to survey the market and trade as they see opportunities arise. If you fall into the later band then you need a company that will support regular trading and who can process a transaction rapidly at short notice.
  • Fees: As with any IRA custodian you will be subject to fees for the management of your account. It can be difficult to get a clear picture of the fee structure of each company from the information available online. You may have to contact each one directly to discuss the costs involved in setting up a new Bitcoin IRA account.

clos up image of a bitcoinWhy Invest in Bitcoin / Cryptocurrency?

Bitcoin and other cryptocurrencies are excellent options to consider when it comes to wealth protection and growth potential for your retirement fund. Cryptocurrency is an alternative asset that operates outside the traditional banking system.  This is an attractive feature for some investors.

What About The Next Economic Crisis?

It is not tied up with traditional assets that retirement funds are typically invested in. With signs that the next financial crisis may be around the corner, it is time to start looking for alternative assets that can protect your wealth. You don’t want to be holding all your funds in traditional paper assets when they suddenly collapse in value. Diversification is key!

Bitcoin Growth Potential

Cryptocurrency boasts incredible growth potential as we are still in the very early days of the technology. Bitcoin is in its infancy making it a great time to get on board. The digital currency is underpinned by a game-changing piece of technology called the “blockchain” that experts believe will change the face of business and become a multi-trillion dollar market in the years to come.

Blockchain Technology

The blockchain makes Bitcoin the most secure digital network in the world. No other network can compete with the level of security it delivers. Its true value lies in the incorruptible, decentralized, transparent, and immutable characteristics of the network.

In simpler terms, Bitcoin is a technology that delivers secure global money transfer and record-keeping, 24 hours per day, 365 days per year. It could revolutionize the way business is done around the globe. As with any financial investment, you should always consult with a professional adviser before making any decisions.

Alternative Assets – Gold & Precious Metals

If portfolio diversification is a strategy that appeals to you, you may be interested in investing some of your wealth in gold. Gold, like cryptocurrency, is an alternative asset and it has been used for centuries to protect wealth against adverse economic and political events.

Gold, silver, and platinum are popular assets the world over for people who wish to protect retirement savings from a sudden financial crisis.

If cryptocurrency investment is something that appeals to you, precious metals may be another asset class worth considering for you IRA. For more information see our: Gold IRA Guide.

Additional reading on alternative asset IRA options – Regal Assets Gold & Bitcoin IRA Review

Main Stream Banks Getting On-Board

2021 saw a surge in the number of financial technology companies getting on board with Bitcoin. Several major financial institutions have also indicated that they are planning on introducing cryptocurrency as an investment option.

CNBC has reported that a large number of Italy’s mainstream banking sector are now using blockchain network technology as part of their operations. And, JPMorgan Chase investment bank has gone live with its in-house digital currency JPM Coin.

The Guardian newspaper has reported that the Bank of England is considering investing in Bitcoin. They are weighing up the possibility of adopting a digital cryptocurrency like Bitcoin as part of a global network of central banks to examine the pitfalls of relying on electronic money.

Want to Learn More?

Related articles and guides:

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Dr. Jeffery Camerda, PhD, is a financial planner who specializes in wealth management and retirement planning.

With a PhD in Economics and Financial Planning, Jeffery represents the highest level of financial planning expertise and achievement in the USA

In addition to preparing you for a career in financial planning, a PhD in economics and finance also prepares you for academic pursuits, such as becoming a university professor in teaching or doing research.

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Jeffrey Camarda, PhD, CFA, EA is also the founder of the Family Wealth Education Institute, is a member of the Financial Planning Association and serves as the Chairman of Camarda Wealth Advisory Group



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