Can You Buy Bitcoin in a Roth IRA?

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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A Roth IRA protects you from capital gains taxes. These accounts can save you thousands of dollars, especially if the assets in your IRA appreciate significantly. Roth IRA tax advantages have attracted young investors who can compound their capital gains tax-free for several decades. These retirement accounts make sense for long-term investors. While most investors think of retirement accounts as places to buy stocks and bonds, you can also buy cryptocurrencies and other alternative assets in a Roth IRA.

Invest In Crypto for Retirement

Buying Bitcoin in Your Roth IRA

Digital currencies have gained significant traction in recent years. These assets operate on the blockchain. This structure increases transparency across transactions and prevents a central power from manipulating the crypto supply. As a result, some long-term investors have held onto Bitcoin and other virtual currencies during the peaks and valleys. Bitcoin’s historical price movement has been filled with dramatic price movements and life-changing gains for long-term crypto investors. 

Investors can escape capital gains with a Bitcoin IRA. Your crypto can accumulate tax-free, and you can contribute to your crypto IRA each year. 

Bitcoin and Roth IRA: Rules and Regulations Overview

Investing in a crypto IRA will shield your assets from taxes, but you will have to know the rules and regulations before getting started. You can’t buy crypto in a traditional individual retirement account. Instead, you will need a self-directed IRA to invest in crypto. These individual retirement accounts have a custodian and give you more flexibility over investment choices. Some self-directed IRA holders use their accounts to buy real estate property, precious metals, and other alternative assets. You don’t have to limit yourself to crypto and stocks.

A Roth IRA holder can contribute up to $6,000 per year to a Roth IRA. This contribution limit jumps to $7,000 per year if you are 50 years or older. Both these limits are lower than the max contribution limit for traditional IRAs. If you want to hit the max contribution level each month, you will have to invest between $500 and $600 per month, depending on your limit. Unfortunately, your contribution can’t include Bitcoin you have already purchased. If you bought Bitcoin in 2010, you would have to find another strategy to avoid or minimize your capital gains taxes legally. 

Investors with Bitcoin can sell their holdings and put the cash into a crypto IRA. Once the money is in the crypto IRA, investors can buy cryptocurrencies and avoid taxes on future capital gains. Of course, you can also hold onto your existing Bitcoin and make future crypto investments through your IRA.

Investors of any age can contribute to a Roth IRA. Teenagers can create Roth IRA accounts with a parent as the custodian. The SECURE Act removed the maximum age cutoff for Roth IRA contributions. However, high earners will face additional restrictions. A single tax filer with a modified adjusted gross income (MAGI) above $125,000 has more restrictions. These taxpayers cannot contribute to Roth IRAs if their MAGI rises above $140,000. If you happen to be married and filing jointly, these cutoff numbers are $198,000 and $208,000, respectively.

Is Bitcoin a Good Retirement Investment?

Bitcoin’s price fluctuates often. Long-term Bitcoin investors have navigated several crashes where Bitcoin fell over 50% within a few months. Through the ups and downs, Bitcoin has soared almost 2,000% since the start of 2017. Bitcoin’s gains are more impressive for people who held it for 10 years. In 2011, Bitcoin rose from $1 to $30, only to crash to $5 per coin. It would have been difficult to hold onto crypto during those price swings. However, investors who bought at any of those prices and held onto their positions would have produced life-changing returns.

Crypto isn’t for everyone. The wild price movements may be too much to bear for a retiree. However, making Bitcoin a small percentage of your portfolio exposes you to substantial potential gains with less downside. You can sell your holdings in your crypto IRA when you want to retire and minimize risk. Some people continue holding onto crypto during their retirement years, but you should assess your risk. Every asset has risks, but few have as much volatility as crypto.

Invest In Crypto for Retirement

How to Add Bitcoin to Your Roth IRA

Adding Bitcoin to your Roth IRA protects your capital gains from taxes. For example, if you bought one Bitcoin at $1 and sold it today, you would pay thousands of dollars to the IRS. A Roth IRA lets you escape that scenario and hold virtual currencies over the long term. In addition, investors can use these strategies to gain exposure to crypto.

Self-Directed Roth IRAs

A self-directed Roth IRA gives you more flexibility than any other retirement account. These accounts let you invest in crypto and avoid capital gains taxes. You can use a custodian like iTrustCapital to set up your self-directed crypto Roth IRA and start investing. iTrustCapital has helped over 175,000 investors use crypto IRAs and conducted over $5.5 billion in transactions. You can also trade crypto in an iTrustCapital Crypto Roth IRA. Investors can capitalize on price fluctuations without worrying about taxes.

The stock market lets people buy positions in thousands of companies. You can buy companies based on the industry, market cap, opportunities, and other parameters. Some publicly traded companies provide exposure to Bitcoin and other cryptocurrencies. While Tesla is known for its electric vehicles, its balance sheet contains some crypto. Companies like Square are more involved in the crypto space. Square is launching a business segment that will focus on decentralized currencies. Nvidia produces GPU chips that Bitcoin miners use for their computers. Robinhood and Coinbase make money when people trade cryptocurrencies on their platforms.

These cryptocurrency-related stocks don’t give you Bitcoin. However, they provide easier access to crypto. Some investors feel more confident owning companies since they can look at revenue, earnings, and valuation metrics to assess each company. 

Buy Cryptocurrency Funds

Looking for the latest crypto opportunities and adjusting your portfolio based on market news can get overwhelming. Most people don’t trade crypto for a living and prefer a passive approach to buying crypto. Crypto funds provide the desirable hands-off investing style that has attracted many people to mutual funds. Professionals look for crypto opportunities and add them to crypto funds. They also stay on top of the news to exit positions at optimal times.

Cryptocurrency funds still give you exposure to Bitcoin and many altcoins. These funds automatically provide diverse crypto portfolios and reduce the amount of research you have to do. Instead of researching many digital assets, you only have to research a few funds until you find one that fits your risk tolerance.

Get Started with Buying Bitcoin on your Roth IRA

Young investors greatly benefit from Roth IRAs. They can benefit from long-term appreciation without worrying about capital gains. Investors can legally avoid or reduce capital gains taxes through various strategies, but a Roth IRA offers a guarantee. You pay tax on the initial contributions and can then make qualifying withdrawals tax-free. 

iTrustCapital helps investors create crypto Roth IRAs. You can turn fiat currency into Bitcoin and let it accumulate in your Roth IRA. iTrustCapital only charges a 1% transaction fee and does not have any hidden costs. You can create an iTrustCapital account and learn more about their crypto Roth IRAs by visiting their website.

iTrustCapital

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