Experts warn against putting cryptocurrencies like bitcoin into a self-governing IRA


In the last year, interest in cryptocurrency has become much more popular, with the price of bitcoin, the highest in terms of market value, jumped to a record high in April.

With all that hype, you may be wondering if it’s possible – and profitable – to invest in cryptocurrencies for retirement, especially in your individual retirement account, or IRA.

This is possible through a self-managed IRA, which can be used to hold alternative investments that are not normally allowed in a traditional IRA, such as real estate or commodities. However, experts generally warn about that.

Here’s why you should probably avoid investing in cryptocurrencies for retirement.

‘Costs can be high’

One reason experts warn about investing in cryptocurrencies through a self-governing IRA is that they are not widely available and do not make sense to most investors. In general, they can be both risky and expensive to maintain, even without possession of cryptocurrencies.

There are also strict rules of the Internal Revenue Office regarding which investments are prohibited in the IRA. With a self-directed IRA, you manage all the investments yourself, so you are personally under attack if some rules are violated.

“Self-directed IRAs typically require a specialized firm or trustee, and costs can be high due to additional compliance and IRA requirements,” Anjali Jariwala, chartered financial planner, chartered public accountant and founder Fit Advisors, says CNBC Make It. “[I]If you do not follow all the rules, your account may lose its deferred tax status. “

There is also the potential for fraud, because the Securities and Exchange Commission or the SEC, warned earlier. “While a broader set of investment opportunities may be attractive, investors should keep in mind that investing in self-governing IRAs increases risk, including fraudulent schemes, high fees, and volatile performance,” SEC 2018 wrote.

“I would be really worried about someone’s decision to continue,” Jariwala says.

Crypto guilt has its risks

In addition to the risks of a self-governing IRA, Jariwala also warns of investing retirement money especially in cryptocurrency, due to its instability and speculation.

Cryptocurrency investors generally need to be happy with extreme price changes and potentially lose their entire investment. For this reason, cryptocurrency may not be the best option in the retirement portfolio. Maybe it makes more sense as a a relatively small portion of your total portfolio because it can dramatically increase your portfolio’s risk profile and potential reductions.

“I believe in diversification and I prefer IRA-type accounts to be invested in markets,” Jariwala says. “If [an investor has] extra money that’s in cash or sitting in a broker’s account, which could be used for more speculative investments like bitcoin, but I wouldn’t try to find a way to invest the money for retirement. “

It is also important to consider the possibility of additional regulation of cryptocurrencies before adding it to your own IRA.

“Currently, the crypto crisis is seen as property, but if the IRS changes the type of property, it can become one that cannot be held in a self-managed IRA,” Jariwala says. If that happens, “you could get stuck and be forced to liquidate at an inopportune time or you will face serious tax problems.”

If, despite the risks, you still want to invest in cryptocurrencies, try to start with the amount you can afford to lose outside of your retirement savings. Allocating a smaller portion of your total portfolio can help hedge against risk while also giving you exposure to cryptocurrency assets.

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