The world of cryptocurrency has blown up over the last couple of years, attracting not just high-risk takers but moderate and conservative investors too. Now, more and more people are considering Bitcoin as an attractive asset to diversify their retirement portfolio.
But investing Bitcoin in a traditional individual retirement account (IRA) has many bottlenecks, as most IRAs aren’t designed for cryptocurrency. So, how do you diversify your retirement portfolio with Bitcoin?
That’s where the Bitcoin IRA comes in.
These are self-directed IRAs that can hold a variety of cryptocurrencies, including Bitcoin. Having a self-directed individual retirement account allows you to invest in cryptocurrency and real estate, precious stones, and other alternative assets.
How Do Bitcoin IRAs Work?
Bitcoin IRAs aren’t too different from traditional IRAs. They enjoy tax advantages and follow the same principle of contributing a specific amount of dollars every year. However, instead of your contribution buying mutual funds, index funds, or EFTs, it’s invested in cryptocurrency.
If you have an IRA and are looking to spread out your investment by adding Bitcoin, you can only do so through a Bitcoin IRA provider. Most providers offer all or a combination of any of the following services:
- Custodial: they hold, protect, and ensure that your retirement account conforms to IRS guidelines and the law.
- Exchange: they offer a platform where you can buy and trade your cryptocurrency.
- Storage: they also protect your Bitcoin, once you buy them, from cyber threats.
Note that some self-directed IRA providers don’t provide an exchange. However, they may allow trading through another exchange platform. Examples of companies offering these services include Bitcoin IRA, Coin IRA, and Equity Trust.
Why Should You Consider Bitcoin IRA for Your Retirement Portfolio?
As pointed out earlier, more people are diversifying their portfolios with crypto, and for good reasons. If you’re still on the fence on whether you should add Bitcoin to your IRA, here’s a couple of advantages you should consider:
1. Diversifying Your Retirement Portfolio
One of the most significant reasons why you should add Bitcoin to your retirement plan is diversification. Diversification reduces your overall investment risk by ‘spreading out your eggs across many baskets.’ That way, your portfolio’s performance isn’t pegged on one company or set of stocks.
2. Reduced Cost of Investing
Taxes can be a nightmare for a crypto trader as you have to calculate taxes every time you gain returns from selling crypto. But investing your Bitcoin through SDIRAs (self-directed IRA) can help you save good money in the long term. That’s because these accounts enjoy a tax advantage, much like regular IRAs.
3. Potential for Massive Returns
Bitcoin is highly unpredictable, which makes it easy for investors to make huge returns. Case in point, it was trading at over $60,000 in February 2021, a massive jump from just over $18,000 in November 2020.
Be in Control of Your Money & Investment with Bitcoin IRA
Bitcoin is definitely something you should consider among your retirement investment options. Like stocks, bonds, and other financial securities, cryptocurrency can be included in your IRA.
With a self-directed IRA, you can buy, trade, and save for retirement in Bitcoin and other cryptos.