Guide to Performing a Bitcoin IRA Rollover
Last Updated on 2nd June 2022 by Jeffrey Camerda
A Bitcoin IRA Rollover is a straightforward process. First, you need to open a new Self-Directed IRA that allows for cryptocurrency investment. Then roll over as much funds as you wish from your existing 401k or traditional IRA. Finally, purchase Bitcoin with the assistance of your selected IRA custodian company.
What is a Bitcoin IRA?
A Bitcoin IRA is a ‘Self-Directed Individual Retirement Account’ that allows you to invest your retirement funds in Bitcoin and often other cryptocurrencies such as Ethereum, Ripple, and Litecoin. Bitcoin and cryptocurrency investment has become a very popular option for people who want to diversify their retirement portfolio. Alternative assets such as Bitcoin operate outside the traditional financial system and as such could be a potential safe-haven in the event the value of conventional assets suddenly falls. With the world rocked by a viral pandemic and the financial system creaking at the seams, the next global financial collapse could be imminent. Traditional assets such as stocks, bonds, and mutual funds could see their value wiped out overnight. In such uncertain times, investors are looking to alternative assets such as Bitcoin to protect their wealth. Diversification is key to protecting your hard-earned retirement funds.
Bitcoin is a digital currency technology that is changing the face of how payments are made across the world. It operates completely independently from the traditional global banking system. It processes financial transactions rapidly and generates lower transaction fees compared to conventional methods. The true value of Bitcoin as an alternative asset lies in its completely decentralized structure, it is not controlled by a central authority or central bank. Also, unlike government-issued currencies Bitcoin is limited to a finite number of coins. The supply is fixed and will never increase. This feature makes it a very attractive option for investors concerned about inflation. Cryptocurrency and precious metals are the go-to alternative assets for people looking to diversify and protect their retirement portfolio.
How Do I Open A Bitcoin IRA?
All you need to do is open a new Self-Directed IRA that allows for investment in Bitcoin. There are many custodian companies out there that specialize in managing cryptocurrency IRA accounts. By law, you are required to use one of these companies to manage your account and act as your trustee. All you need to do is pick a Bitcoin IRA custodian company that works well for you and they will take you through the steps required in opening a new account. Typically you will need to complete an Application Form, sign some paperwork, and provide a form of ID such as a driver’s license. Once the paperwork is complete and verified, your account can be up and running in minutes.
Rolling over a traditional IRA or a 401k plan to a Bitcoin IRA is easy. You can rollover as much or as little of your existing retirement plan as you like. Your IRA custodian will take you through the steps involved in rolling over your funds. It is worth noting that you can hold both a traditional IRA and Bitcoin IRA at the same time. This means you can rollover a percentage of your existing IRA or 401k plan into a new Bitcoin IRA and retain some of your assets in your traditional IRA. This approach is an attractive option for investors who wish to ‘hedge their bets’. The process is straightforward and will require the completion of some paperwork. It is a process a good IRA custodian will walk you through.
Direct vs. Indirect IRA Rollover
There are two ways to effect the rollover. You can perform either a Direct, or an Indirect Rollover. A direct rollover is the safest option as this way you avoid the possibility of triggering any taxation or early withdrawal penalties. A direct rollover involves your funds moving from your existing IRA/401k directly into your new Bitcoin IRA account without you laying a hand on them. This way you cannot incur any financial penalties. An Indirect rollover, on the other hand, involves a check being issued to you by post to the value of funds requested for rollover. It is then up to you to lodge these funds in full into your new account within 60 days. If you run over the 60-day window you will trigger an early withdrawal fee and significant taxation penalties from the IRS. Our advice would be, where possible, stick to a direct rollover.
How Do I Buy Bitcoin with my IRA?
Buying Bitcoin with your new self-directed IRA is easy. Just instruct your custodian company to purchase on your behalf. If you have chosen a good custodian this is a service they will provide. All you have to do is give them clear instructions on how much and which of the cryptocurrencies you wish to invest in. The agreed amount of funds will leave your account and bitcoin/ cryptocurrency will be purchased on your behalf and stored securely in your name. The best custodian companies will be using secure, cold storage. This means the bitcoin is stored offline on a hard drive in a secure location out of reach of online hackers.
If you wish to have more control over the trading of cryptocurrency in your Bitcoin IRA you can set up what is called an IRA/LLC. This is an Individual Retirement Account / Limited Liability Company. This arrangement gives you full checking control over your account and you can process transactions without involving your custodian or a middle-man. This set-up gives limited liability protection to the account holder similar to that of a private corporation and imparts full transactional control to the investor. It is an arrangement that may be favored by an account holder who wants to process transactions regularly and swiftly.
Choosing a Bitcoin IRA Custodian Company
Probably the most important part of the process of rolling over a traditional IRA/ 401k to a Bitcoin IRA is choosing the best custodian company for your needs. Everyone’s requirements will be a little different and it’s vital you pick a company that works best for you. There are many companies on the market today and some clear frontrunners in terms of experience, expertise, and services provided. You want to look for a custodian that can assist with account set-up, fund rollover, purchasing Bitcoin, and who will ensure all legal and taxation requirements and technicalities are properly taken care of. For more information on choosing a good custodian, see our guide: The Best Bitcoin IRA Companies 2020
What to Look For in a Bitcoin IRA Custodian
Amongst the features you should consider when weighing up your options are:
- Experience & Expertise: The cryptocurrency market is a highly specialized field. It is best to go with a company that has an in-depth understanding of cryptocurrency technologies and a wealth of experience in purchasing and securely storing crypto-assets. This is your retirement fund, so you want to place it in very safe hands.
- Ratings & Reviews: The more established Bitcoin IRA companies have plenty of industry ratings and customer feedback readily available online. A little research will quickly inform you of how the company has been performing and how they are viewed by industry experts and their customers. Doing some research on ratings and reviews will give you a good feel of which companies are performing well and which are maybe lagging behind.
- Number of Cryptocurrencies Supported: How many cryptocurrencies do they support? Most support Bitcoin but there are many other cryptocurrencies out there with excellent investment potential. Don’t lock yourself down to a narrow range of investment opportunities. It’s worth considering some of the other well-established cryptocurrencies and the newer technologies as they emerge on the market and present exciting investment opportunities.
- Fees: It can be difficult to obtain clear and accurate information on account fees online. There is a very limited amount of information openly published online. It’s probably best to contact the companies directly when you have narrowed your choices and discuss opening an account to get a clear breakdown of fees. Some choose a standard annual rate while others employ fees based on a percentage of the account value. Depending on your individual retirement portfolio one may be clearly favorable over the other. Just get on the phone and discuss your options directly with the custodian company.
For more info on Bitcoin IRA companies, read our guide on The Best Bitcoin IRA Companies 2020, by clicking here.
What Cryptocurrencies Can I Buy with my IRA?
There are many cryptocurrencies available on the market today. Here we take a look at some of the main contenders, the top ten in terms of market capitalization at the time of writing.
- Bitcoin is the world’s first and best-known cryptocurrency. Bitcoin employs a technology known as the blockchain to store and exchange digital transactions. It is a decentralized currency that operates without a central bank or administrator and facilitates the transfer of currency from user to user on a peer-to-peer network without relying on any intermediaries.
- Ethereum is both a cryptocurrency and an open-source, public, decentralized computing platform. It can be used to create decentralized applications and issue new crypto assets, referred to as Ethereum tokens. The distributed operating system and computing platform feature smart contract functionality.
- Ripple/XRP has been developed for enterprise use and aims to be a real-time, cost-efficient, gross settlement cryptocurrency for cross-border payments. XRP is the cryptocurrency used by the Ripple payment network. It was developed by Ripple Labs, a San Francisco based company.
- Bitcoin Cash is a fork in the Bitcoin project that aims to provide greater transaction fluidity for everyday transactions. It was established in 2017 and in 2018 it was split again as it forked into two separate cryptos; Bitcoin Cash and Bitcoin SV.
- Litecoin is a cryptocurrency technology that employs a faster payment confirmation schedule and a different cryptographic algorithm than Bitcoin. Created back in 2011 it is one of the earlier Bitcoin spin-offs. It operates using an open-source cryptographic protocol and is not governed by a central authority. It is a peer-to-peer cryptocurrency run on an open-source software project.
- Tether is a new type of cryptocurrency called a ‘stablecoin’. It differs from the likes of Bitcoin in that it aims to keep its valuation stable and avoid sharp swings in its value. It runs on blockchain technology and its coins are backed by an equivalent amount of traditional fiat currency such as the US Dollar.
- EOS is a cryptocurrency that has been designed to support large-scale applications. Significantly, there are no fees to send or receive EOS. This is achieved by substituting transaction fees for inflation. The protocol periodically rewards entities that run the EOS network with new EOS coins.
- Binance Coin is a cryptocurrency that runs on the Ethereum blockchain. It is strictly limited to a maximum of 200 million Binance coins. It is anticipated the currency will be used to support operations on the Binance exchange such as paying for trading fees, listing fees, and exchange fees.
- Bitcoin SV is a fork of the Bitcoin Cash project. It was established in an attempt to restore the original Bitcoin protocol as defined in version 0.1 of Bitcoin. By restoring the original protocol, developers believe it will remain stable, and allow for massive scaling.
- Stellar Lumens is an open-source and decentralized protocol used for digital currency to fiat currency transfers. It can be used to facilitate cross-border transactions between any pair of currencies across the globe. The cryptocurrency aims to connect payment systems, banks, and individuals quickly and reliably.
There are plenty of options for consideration. The best bitcoin IRA custodian companies offer a wide range of crypto investment opportunities. It may be worth researching the market and identifying promising alternative investment opportunities. For an in-depth review of the Regal Assets Bitcoin IRA click – read more.
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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.
Here at the Wealth Builder, our financial advisory company was founded in 2007 and services all across the USA with over 16 years of expertise.
In order to provide the finest advice and services, we pay close attention to the specific financial circumstances and requirements of each client.
In order to guarantee that our clients don't get a sales pitch for insurance or investments, as well as a lack of conflict of interest from a prospective commission-bearing corporations, Jeffery focuses on fee-based services. Financial planning for wealth managers, financial well-being workshops, and personal financial planning packages are all part of the company's offering.
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