Cryptocurrency IRAs can help you save thousands of dollars on your tax bill.
While cryptocurrency IRAs might not be right for every situation, they’re a fantastic option for investors who are looking to build wealth in the long-term while minimizing their tax liability.
In this guide, we’ll break down everything you need to know about cryptocurrency IRAs. We’ll also go through the pros and cons of 4 popular cryptocurrency IRA options.
What is Bitcoin and cryptocurrency?
Bitcoin is the first cryptographically secured peer-to-peer currency of its kind. For the first time ever, cryptocurrencies like Bitcoin allow two unknown parties to transact peer-to-peer with one another without the need of a third party to verify and legitimize their transactions.
Participants in the burgeoning cryptocurrency ecosystem can use cryptocurrency IRAs and
like CoinLedger to invest while remaining compliant with tax law. crypto tax software What is an IRA?
An IRA is an investment account that allows individuals to save for retirement with tax-free growth or on a tax deferred basis. In a crypto IRA, the underlying assets that you are investing in are cryptocurrencies like Bitcoin, instead of stocks/bonds/or other investments.
While you can’t directly invest in cryptocurrencies through most IRA providers, self-directed IRAs do allow investors to build their savings through alternative investments such as real estate,
, and cryptocurrencies. precious metals
For tax-conscious individuals, a Bitcoin IRA can be attractive as you don’t trigger taxable events when trading within these accounts like you normally would when trading on a cryptocurrency exchange.
How do crypto IRA taxes work?
IRAs are taxed differently depending on whether you choose a traditional IRA or a Roth IRA.
In a traditional IRA, all of your contributions are deducted from your taxable income. You pay taxes on earnings that you withdraw once you are of retirement age.
While Roth IRA contributions can’t be deducted from your taxable income, you will not be taxed when withdrawing from the Roth IRA. This can make a big difference on your total tax liability if you expect to be in a higher tax bracket in the future.
Are crypto IRAs safe?
If you’re interested in getting started with a cryptocurrency IRA, you should make sure to carefully research your IRA provider’s approach to keeping your assets secure. Some providers provide insurance and partner with custody solutions to make sure that your holdings are secure.
What are the drawbacks of a crypto IRA?
Before you get started with a crypto IRA, it’s important to understand its drawbacks.
Unfortunately, you can’t put your entire savings within your cryptocurrency IRA. IRAs have a contribution limit of $6,000 a year for workers under 50 and $7,000 a year for workers over 50.
Income limits on contributions
In order to contribute to an IRA, you need compensation income that must equal or exceed the amount of your IRA contribution. Compensation includes wages, salaries, and self-employment income among other types of income.
Your ability to contribute to a Roth IRA is limited by your adjusted gross income (AGI) and your filing status. For 2022 single filers, the phase-out begins when your AGI is $129,000 and you are fully phased-out from Roth IRA contributions when your AGI is $144,000.
In both a traditional and Roth IRA, you will not be allowed to withdraw your money until you are 59 ½ years of age. If you withdraw your funds earlier, you will be subject to a 10% penalty.
If you’re looking to take profits on your cryptocurrency investments in the short-term, holding your cryptocurrency in an IRA may not be the right strategy for you.
Unlike a 401(k), you will need to set up your IRA on your own without the help of your employer and without matching contributions.
What are the best Bitcoin and cryptocurrency IRA platforms?
There are multiple cryptocurrency IRA platforms out there today. We encourage you to do your own research when deciding which platform is right for you; however, we’ll take a look at some of the market leaders below.
BitIRA provides end-to-end insurance for cryptocurrencies stored on the platform. In addition, the company offers a cold storage option for custody that leverages multi-signature technology so that your crypto can be kept on your own device. This helps keep your private keys safe from thefts and hacks. BitIRA
Another option is to allow BitIRA to safeguard your cryptocurrency in cold storage. The company utilizes grade-5 nuclear bunkers that are constantly monitored and guarded by security specialists to keep your crypto secure.
BitIRA currently supports multiple cryptocurrencies including Bitcoin, Ethereum, Litecoin, Aave, and Chainlink.
BitIRA comes with various fees including $50 of account set-up fees and $195 of annual maintenance fees.
Currently, the minimum investment to get started with BitIRA is $5,000.
Rocket Dollar allows you to open a self-directed IRA or self-directed solo 401K allowing you to invest in a variety of assets within your retirement account—cryptocurrency included. This can be attractive for advanced investors who want complete control over their retirement account with the ability to invest in additional assets like real-estate or in startups. Rocket Dollar
"Not your keys, not your crypto," is not a problem with Rocket Dollar. You have the ability to control your storage options, and you can use your Rocket Dollar LLC checking account to buy either a hot or cold wallet, as well as physical storage devices.
When compared to others on this list, the Rocket Dollar price is very competitive. For a checkbook IRA, you simply pay $360 for setup and a $15 flat monthly fee. There are no AUM fees. From here, your chosen platform sets trading, custody, and burn fees.
Currently, Rocket Dollar supports Bitcoin, Ethereum, and Litecoin.
One thing to be aware of is that Rocket Dollar is not built for a brand new crypto investor. At the time of this writing, there isn’t a crypto trading portal within the Rocket Dollar dashboard.
Bitcoin IRA was one of the first companies to start providing a turn-key solution allowing investors to trade and invest in cryptocurrencies like Bitcoin within an IRA account. The company has the largest user base in the industry which is a testament to its ease of use. Bitcoin IRA
When using Bitcoin IRA, you are actually using a number of different solution providers to help facilitate your IRA. Bitcoin IRA connects all of these providers to give you the user a one-stop shop to enable your IRA. By connecting all of these providers, Bitcoin IRA is able to give you a secure platform for storing, insuring, and facilitating your IRA.
With Bitcoin IRA, you can invest in multiple different cryptocurrencies including Bitcoin, Ethereum, Ripple, Litecoin, Bitcoin Cash and Ethereum Classic.
In addition, the platform offers interest for various cryptocurrencies. At the time of writing, Bitcoin IRA offers 2% APY for Bitcoin and 2.7% APY for Ethereum. However, you must have $10,000 worth of value for each coin to earn interest.
One thing for investors to be aware of with Bitcoin IRA is its high transaction and ongoing account fees when compared to others on this list. The account comes with a 5.99% set-up fee and a 2% trading fee.
SwanBitcoin IRA Swan Bitcoin IRA provides self-directed traditional Bitcoin IRA or Roth IRAs, where your Bitcoin holdings are kept in a custodial legal trust account at Prime Trust. Prime Trust is a regulated U.S. chartered trust company ensuring that your assets are protected and compliant with regulations. This setup includes independent oversight to help prevent fraud and unauthorized use of funds.
In addition to the Traditional and Roth IRAs, Swan Bitcoin offers other options for specific clients. Some Swan Private clients can take advantage of Solo 401k, a Checkbook IRA LLC, or IRA financial trust options. These alternatives provide flexibility and cater to different investment needs.
Swan Bitcoin charges a flat monthly administration fee of $20 until your account balance reaches $100,000. Once your balance surpasses $100,000, the monthly administration fee is calculated at 0.02083% of your balance at the end of each month (equivalent to an annual fee of 0.25%). It's important to note that these administration fees are deducted monthly from outside your IRA balance.
For buy and sell transactions, Swan charges a fee of 0.99%. These fees are funded from your IRA funds, so keep that in mind. It's worth noting that Swan Bitcoin focuses solely on Bitcoin and does not support any other cryptocurrency options for IRAs.
iTrust Capital offers one of the lowest cost crypto and Bitcoin IRA platforms. In addition to crypto, you can also trade physical gold in its IRA/401K accounts. iTrust Capital
According to iTrust, fees end up costing as much as 90% less than other IRA providers. Many cryptocurrency IRA companies charge up to 15% transaction fees, while physical gold IRA companies charge a 30% spread. iTrust takes a different approach and only charges 1% on transaction fees.
Currently, the minimum investment required to start an iTrust Capital account is $2,500.
iTrust Capital supports dozens of cryptocurrencies including Bitcoin, Ethereum, Cardano, Chainlink, and Dogecoin.
Cryptocurrency assets are custodied with Curv, a multi-authorization cryptocurrency wallet management solution enabling financial institutions to store their funds with unparalleled security.
How else can I minimize my crypto tax burden?
Remember, cryptocurrency IRAs aren’t the only way to reduce your crypto tax burden. For more strategies, check out
. our guide to legally reducing your crypto tax bill File your crypto taxes today
Looking for an easy way to manage your cryptocurrency taxes?
More than 300,000 crypto investors use CoinLedger to simplify the entire
process. crypto tax reporting All you have to do is connect your exchanges and wallets. The app will handle all of the number crunching and generate auto-filled tax forms for you with the click of a button. Import these forms into your preferred tax software like or TurboTax or give them to your tax professional. TaxAct . You can get started today with a free preview report Frequently asked questions
Let’s cap things off by answering a few frequently asked questions about cryptocurrency IRAs.
Can I buy cryptocurrency in an IRA? Yes. Self-directed IRAs allow investors to place their holdings in alternative investments like cryptocurrencies. Can I buy Ethereum in an IRA? Yes. Providers like BitIRA and Bitcoin IRA give investors the ability to buy and hold Ethereum in an IRA. Can I have multiple Roth IRAs?
There is no limit to how many IRAs you can have. However, workers under 50 are only allowed to contribute $6,000 a year between all of their IRAs.
Which IRA is best for crypto?
Different IRA providers have different approaches to security and different fee structures. Which IRA is best for you may vary depending on your unique circumstances.