Is it Possible to Buy Bitcoin With Self Directed IRAs?
Yes, you can hold Bitcoin in a self-directed IRA. But you might want to consider other options instead.
There are two main types of IRAs: Traditional and Roth. With a traditional IRA, you contribute pre-tax dollars into a retirement account, and then you pay taxes on the money when you withdraw it later. With a Roth IRA, you contribute after-tax dollars and never pay taxes on withdrawals.
With a traditional IRA, you can invest in stocks, bonds, mutual funds, ETFs, real estate, and cryptocurrencies. With a Roth IRA, you can invest in anything except real estate.
So if you want to invest in cryptocurrencies, you’d probably want to open a Roth IRA instead of a traditional one. And since you can’t put Bitcoin or Ethereum into a Roth IRA, you could just buy shares of a crypto exchange like Coinbase and hold onto them until you decide to sell.
But if you want to own Bitcoins and Ether, you can still do that. Just set up a Self Directed Individual Retirement Account (SDIRA), which lets you invest in whatever assets you choose. Then you can transfer your coins directly into the SDIRA.
For example, let’s say you wanted to invest $10,000 in Bitcoin. You would create a SDIRA, deposit $10,000 into it, and immediately transfer the Bitcoin into your SDIRA. When you withdraw the money, you’ll owe income tax on the amount withdrawn plus a 10% penalty. So if you withdrew $5,000, you’d end up paying $1,500 in taxes and fees.
However, if you invested in a stock market index fund, you wouldn’t have to worry about taxes or penalties. Instead, you’d just receive dividends from the fund.
And while you can’t currently invest in cryptocurrencies in a Roth IRA, you can invest through a brokerage firm like Charles Schwab. You can purchase individual securities like stocks, bonds, and ETFs there.
What are some good ways to invest in cryptocurrencies?
You can invest in cryptocurrencies by buying them directly with fiat currency. For example, you can buy Bitcoin with cash at an online exchange like Coinbase.
Or, you can invest in a crypto hedge fund. These funds typically charge high fees, but they’re designed to provide investors with exposure to the entire cryptocurrency market.
And finally, you can invest in an ICO. An Initial Coin Offering is similar to a crowdfunding campaign for startups. Investors pledge their support for a new project; the company raises capital by selling its tokens. The proceeds go towards development costs.
If you want to learn more about how to invest in cryptocurrencies, check with your financial adviser.