Cryptocurrency is everywhere. It seems like every day a new cryptocurrency is launched and the value of Bitcoin continues to rise. But what does this mean for your hard-earned savings? Can you invest in cryptocurrency with an IRA? In short, yes! You can use a self-directed IRA to invest in cryptocurrencies, like Bitcoin, Ethereum, and Litecoin. Let’s take a look at how it works.
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What is a self-directed IRA?
A self-directed IRA is a type of investment account that allows you to make investments in a wide range of assets, including real estate and tax liens. It’s similar to a traditional IRA or 401(k) plan in that it allows you to save for retirement tax-efficiently.
According to SoFi advisors,“IRA is a broader term of a number of different types of retirement accounts – each with their own function and purpose.”
However, unlike those accounts, which are limited to certain types of investments (such as stocks and bonds), self-directed IRAs allow you to invest in any asset that is permitted by the IRS. This means you can buy gold bullion or collectibles, even cryptocurrencies like Bitcoin or Ethereum.
The 3 types of cryptocurrency self-directed IRAs
The first type of cryptocurrency self-directed IRA is the exchange-traded fund (ETF). This is an investment fund that owns a basket of assets and trades on a stock exchange like any other stock. ETFs are easy to buy through your brokerage account, but they have some drawbacks:
- Higher Fees – With many funds charging around 1% per year in fees, it’s much cheaper to invest directly into cryptocurrencies yourself than through an ETF.
- You Can’t Control Your Own Cryptocurrencies – If you want to buy and sell cryptocurrencies yourself, then you’ll need another type of cryptocurrency self-directed IRA. The second option is known as a “non-discretionary” account which allows you full control over what assets are held in the account.
Higher Risk – Because non-discretionary accounts allow for greater flexibility in trading options, there’s also more potential for losses if something goes wrong with the investments or market conditions change unexpectedly. Lower Liquidity – Non-discretionary accounts don’t trade on an exchange so they can take longer than other types of IRAs.
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How to invest in a self-directed IRA for cryptocurrency
If you’re interested in investing a self-directed IRA into cryptocurrency, here’s how to do it:
- Open an IRA account with a custodian that allows for alternative investments. There are many companies that offer this type of account, and they vary significantly in their services and cost.
- Choose an investment strategy for cryptocurrencies and other alternative investments you want to include in your portfolio. You can choose to buy cryptocurrencies outright or invest in other types of assets such as real estate or private equity funds.
- Buy the cryptocurrencies you want using your custodian’s online platform, which will typically require setting up a wallet with them as well if they don’t provide one themselves and then transferring funds accordingly when needed so that everything tracks properly within your account(s).
It’s important not only because it helps keep track of what happens but also because doing so can help prevent mistakes from happening later on down the road due to miscommunication between parties involved–a problem that could potentially lead someone into making bad decisions about their money when trying either sell something back out later down the line.
Now that you know about the different types of cryptocurrency, self-directed IRAs and how to invest in one, it’s time to get started.