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IRA Financial Group Blog

AdBits Episode 22 – How to Invest in Bitcoin with your IRA

AdBits Podcast
4 Minute Read

IRA Financial’s Adam Bergman Esq. discusses how to invest in Bitcoin using a Self-Directed IRA, the tax treatment of cryptos and the advantages of investing with retirement funds.




Believe it or not, Bitcoin has been the best performing asset of 2020! It has outperformed gold and even the S&P 500. When this podcast was recorded in November of 2020, it was near $20,000. However, as of this writing (12/22/20) it has skyrocketed to over $23,000!! That’s up from a low of under $5,000 at the onset of the COVID-19 pandemic.

Obviously, Bitcoin, and cryptocurrency in general, has seen an increase in popularity over the last several months. What we’ve seen at IRA Financial is an increased demand to invest in Bitcoin with retirement account funds. Since retirement accounts come with tax advantages, the idea is to invest in assets that will see tax-free gains. In this episode of AdBits, Mr. Bergman discusses the ins and outs of using retirement funds to invest in Bitcoin, and other cryptos.

Why Invest in Bitcoin?

Bitcoin is an emerging asset that is backed by the blockchain technology. The concept behind cryptocurrency is that there is a finite amount that can be “mined.” Once all of a particular digital currency has been unlocked, that’s it. There will never be any more created. Unlike precious metals, which are still mined to this day, you won’t unlock more Bitcoin once it is all out there.

What’s still unsure is Bitcoin’s place in the world as an actual currency. What remains to be seen is if it will eventually upend traditional fiat, like the US dollar or euro. What we do know, is that Bitcoin is here to stay. More and more people, especially those in other countries, are using cryptos to buy goods and services. For now, Bitcoin is seen mostly as an investment here in the US. You generally cannot go to your local store and purchase groceries with Bitcoin. Therefore, much likes stocks, real estate and other assets, you invest in Bitcoin in the hopes that the price will continue to rise.

For the same reason you invest in stocks and other assets with retirement funds, you should consider adding Bitcoin and lesser known cryptos into your portfolio. Of course, Adam Bergman, and IRA Financial, are not in the business of giving investment advice. It’s important for each individual to look at a particular asset to see if it aligns with his or her investment goals. However, we do want to educate people about any type of asset, especially emerging assets like Bitcoin, that are making a splash. Before investing, speak to a financial advisor or planner to see if, and how much, you should allocate to Bitcoin. It certainly isn’t right for everyone because of the inherit risk of digital currency.

Why Use Retirement Funds?

One of the key strategies you will see about retirement account investments is to properly diversify your holdings. By using a Self-Directed IRA, not only can you invest in traditional assets, such as stocks and mutual funds, but alternatives, including real estate, precious metals, and yes, cryptocurrencies! Traditional plans grow on a tax-deferred basis, meaning you don’t pay taxes on any contributions made to the plan. The taxes are deferred until you withdraw from the plan. This gives one an upfront tax break. Alternatively, you can fund a Roth IRA with after-tax money. There is no immediate tax break, but all qualified distributions from the plan are tax free!

When it comes to using an IRA to invest in Bitcoin, it’s important to understand the tax implications. If you were to use personal funds, you must pay attention to the capital gains tax regime. You must know the details of every crypto transaction you make – when you bought it, how much you paid, when you sell it, etc. When using an IRA, you don’t need to worry about capital gains. You buy, sell, trade and hold cryptos, without having to know when each asset was purchased, since there is no annual taxes to be paid.

Your Options

One of the first ways people were buying and selling Bitcoin was through the use of a broker. There are two major drawbacks of using a broker. First, is availability. Crypto markets do not close and are traded 24/7. While your broker is sleeping, the price of your investment might tumble and you’re stuck. You need the ability to invest when you want. Secondly, brokers aren’t regulated and can charge huge commissions. What good is a great investment if you have to pay all your gains for broker fees!

Next came the use of an LLC within your Self-Directed IRA plan. The LLC is owned by the IRA and is managed by you, the IRA owner. The LLC then opens an account at the cryptocurrency exchange, such s Gemini, Coinbase or Kracken. The funds get moved to your new account on the exchange and you can buy and trade as you wish. This is because you control the LLC and can make investments without a third party broker.

However, the best way is utilizing the IRA Financial/Gemini Exchange partnership. We are the first Self-Directed IRA company to allow investing in Bitcoin in the name of the IRA. There’s no broker or LLC to pony up money for. Since the account is in the name of the IRA, there are no potential tax issues. You simply set up a Self-Directed IRA with IRA Financial, and you will be directed to set up an account with Gemini. Then, you fill out an authorization form and IRA Financial will send your money to your Gemini account. You are then free to buy and trade Bitcoin and any other crypto on Gemini’s platform at your leisure.

Don’t rely on us to see what you should invest in. But do consider IRA Financial if you decide you want to take a shot at Bitcoin as an investment!

Stay In Touch

We always appreciate our listeners and we hope you will continue to listen and spread the word. You can find AdBits on SoundCloud, YouTube or your favorite streaming platform. Thanks for listening and if you have any topics you want to see covered, give us a call @ 800.472.0646 today!

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