How To Buy Cryptocurrencies With a Roth IRA

You can hold cryptocurrencies in a Roth IRA, but not with every provider

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Cryptocurrencies have exploded in popularity over the past couple of years, bringing the excitement of a relatively new marketplace to buy and sell digital assets. If you’re into cryptocurrency, you may want to know how to buy cryptocurrencies with a Roth IRA, a tax-advantaged retirement account. You can purchase cryptocurrencies with a Roth IRA, but it isn’t always simple.

In this article, we’ll look at how to buy cryptocurrencies with a Roth IRA and whether it makes sense for your retirement plans.

Key Takeaways

  • Most traditional brokerage firms don’t offer cryptocurrency investments in Roth IRAs.
  • You may invest in cryptocurrency-related assets in regular Roth IRAs.
  • You could invest in cryptocurrencies using self-directed Roth IRAs.
  • It’s crucial to invest with caution when buying crypto in your IRA.

Can You Buy Cryptocurrency With a Roth IRA?

The first big question is can you buy cryptocurrencies with a Roth IRA? Yes, you can invest in crypto with a Roth IRA account. However, not all Roth IRA accounts support cryptocurrencies.

The IRS classifies virtual currencies as property, and while it does not explicitly prohibit virtual currencies in Roth IRAs, it does have restrictions on property investments in Roth IRAs. That makes it difficult to directly purchase cryptocurrencies in your Roth account.

Most brokerages do not allow for directly purchasing cryptocurrencies in Roth IRAs. With a traditional Roth IRA, you can invest in cryptocurrency ETFs or companies involved with cryptocurrency in some way.

Another way to add cryptocurrencies in your Roth IRAs is to open an account with a self- directed IRA provider. There are providers such as iTrust Capital who provide specific cryptocurrency IRAs and Roth IRAs, and others such as Rocket Dollar that offer Roth accounts for investments in many alternative assets, including cryptocurrencies.

Should You Invest in a Crypto Roth IRA?

One of the biggest benefits of investing in a Roth IRA is that contributions and earnings (subject to certain rules) can be withdrawn tax-free.

Before you click the button to sign up for a crypto IRA, take some time to decide if cryptocurrency makes sense for your retirement accounts. While cryptocurrency investing can be fun and profitable for some, it’s also highly volatile and risky. Cryptocurrency may not be a good choice for your retirement investments, depending on your investment goals.

According to the Securities and Exchange Commission (SEC), risks of self-directed IRAs include lack of disclosure, liquidity, and fraud.

How To Buy Crypto With Your Roth IRA

Suppose you want to move forward and put Bitcoin, Ether, or other cryptocurrencies in your Roth IRA. In that case, you will need to open an account with a Roth IRA provider that supports cryptocurrencies. To buy cryptocurrencies with a Roth IRA, follow these steps:

Find a Custodian for Your Roth IRA

If you want to hold cryptocurrency directly and not through an investment fund or stock, you’ll need a Roth IRA custodian with support for cryptocurrencies. Consider factors such as account minimums, fees, and number of cryptocurrencies on offer before making your selection.

Roth IRAs are subject to annual contribution limits, which vary by age and income.

Open a Self-Directed IRA

Opening a self-directed IRA is faster and easier than most people realize. You can open a self-directed Roth IRA for cryptocurrency online in less than 10 minutes. To start the new account, you’ll need personal information, including your contact details and Social Security number. You can connect a bank account or roll over funds from an existing Roth IRA for funding.

Purchase Bitcoin or Other Cryptocurrency With Your Roth Account

If you’ve ever bought stock in a brokerage account, buying cryptocurrency with a crypto IRA is very similar. However, where most stockbrokers allow you to trade stocks and ETFs with no added commissions or fees, that’s not the case with cryptocurrency. Because you’ll have to pay trading fees and possibly other ongoing fees, it’s vital to review costs and fees when picking a crypto Roth IRA.

Stay Involved in Your Investing

Some IRA accounts are designed to be set up and mostly forgotten about until you retire, requiring very little intervention. With a self-directed cryptocurrency account, it’s wise to keep up with the news on your holdings and continually evaluate whether they still make sense for your retirement account. Cryptocurrency prices can change quickly with little warning, so always keep up with what’s going on in your portfolio.

The Bottom Line

Cryptocurrency Roth IRAs are easy to use for anyone comfortable with online investing. However, just because it’s easy, doesn’t mean it’s right for everyone. Review the fees and risks before putting cryptocurrency in your Roth IRA.

Frequently Asked Questions (FAQs)

What is the best crypto IRA?

There are several IRA providers, including  iTrustCapital, Alto, Rocket Dollar, Bitcoin IRA, and BitIRA, that offer cryptocurrency Roth IRAs. Before signing up and investing, it’s important to review fees, available cryptocurrencies, and the provider’s security practices.

How does cryptocurrency work?

Cryptocurrency is a category of digital currency relying on blockchain technology. A blockchain is a large, public database where all holdings and past transactions are recorded and maintained by a distributed network of computers called miners.

How does Roth IRA investing work?

A Roth IRA is a tax-advantaged retirement account. Contributions are made with after-tax dollars, meaning you don’t get a deduction in the contribution year. Qualified withdrawals are tax-free, meaning you don’t have to pay taxes on capital gains. Depending on your investment time frame, this could be advantageous.

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Article Sources

  1. Internal Revenue Service. "Virtual Currencies."

  2. Internal Revenue Service. "Retirement Topics - Prohibited Transactions."

  3. Securities and Exchange Commission. "Investor Alert: Self-Directed IRAs and the Risk of Fraud."