It’s been eight years since Bitcoin burst onto the market with a credo and technology (blockchain) that threatened the traditional concept of a central authority for currency and investing. In the years that have followed, Bitcoin has gone from being regarding with trepidation to stealing headlines as it passes $5,000 in value and all predictions from the experts are touting a future of continued growth. As Bitcoin grows in value and adoption, central authorities like the IRS have been forced to take notice and consider how to regard digital assets.

As of March 2014, the IRS issued notice that cleared the stance on taxation of Bitcoin. The official ruling classified digital assets as “property” with tax principals on transactions mirroring properties like gold and real estate.  

That ruling opened a new door of possibilities for investing in Bitcoin and other cryptocurrencies – namely retirement funds. Traditional investment vehicles suddenly had a challenger in the field as investors began looking to Bitcoin to diversify their retirement portfolio amid a turbulent financial climate.

Bitcoin is fast rising in popularity as an investment alternative and inching towards mainstream adoption. However, questions and concerns still circle around Bitcoin and its future. If you are still on the fence about whether to include it in your own retirement portfolio, here what you should consider and how you can move forward with an investment (should you choose to).

What is Bitcoin IRA?

A Bitcoin IRA is a retirement account that purchases Bitcoins (or other digital currency) and holds those coins until you reach retirement age of 59 ½. Your Bitcoins will accrue in value and not be subject to capital gains taxes until you reach retirement and begin withdrawing funds. It’s the best way to take advantage of Bitcoin’s skyrocketing value without having to pay yearly taxes.

Currently, to invest in a Bitcoin or other digital currency IRA you can rollover funds from an existing retirement account into a self-directed IRA. Or you can use retirement funds in a liquid position to start a new IRA..

The types of accounts that can be rolled over into Bitcoin include:

  • IRA
  • Roth IRA
  • 401(k)

Unfortunately, it is not possible to invest any current Bitcoins you own into an IRA. The IRS requires that buying into a Bitcoin based IRA be done with US dollars.

Why Invest in Bitcoin vs Traditional Stocks?

History of Growth – In April of 2010, Bitcoin was valued at $0.003 against the US dollar. By 2013, Coinbase reported selling $1million worth of Bitcoins in a single month. Step-by-step the cryptocurrency has grown in value and momentum is building. The year 2017 saw over 400 percent growth in value for Bitcoin and an all-time high of $5,000. The cryptocurrency is up 40% in August, 2017 alone and has now reached $64 Billion in total valuation.

Here’s a brief history of Bitcoin’s growth:

The lesson to be learned from the history of Bitcoin is that cryptocurrency is only going to keep growing. It has defied all critics shouting “bubble!” and instead increased in adoption and value.

Adoption for the cryptocurrency is expanding to a global market with countries like Japan now accepting it as a legal method of payment. In the world of cryptocurrency, increased adoption equals increase in value. Some investors feared that more people joining the bandwagon would lead to dilution and loss of value, however, the opposite has proved to be true. In fact, Bitcoin’s design inherently rewards adoption. The more people use Bitcoin, the more valuable it becomes.

Hedging against traditional markets – Bitcoin was born in response to the US subprime mortgage crisis of 2008. The stock market crash saw investors lose their retirement savings and floundering for how to recover. It was a bitter pill illustrating that having a diverse portfolio is critical to protecting your retirement savings. “Never put all your eggs in one basket” became the lesson savvy investors took away from the Great Recession.

Bitcoin has a limited supply (just like gold or silver) with a cap of 21 million coins that can ever be created. The cap was built into the design of Bitcoin to protect against the inflation that plagues traditional currency and the stock market. Traditional currency is controlled by a central agency and there is no limit the amount of money they can print. This endless and reckless production of new money creates inflation and the loss of value of currency. Bitcoin will never lose its value in this manner – think of it as a free-market alternative to government inflation.

The smart money for retirement investment is to build a diverse portfolio with traditional (stocks) and non-tradition investments (Bitcoin).

Independent Reviews of Bitcoin as an Investment

If you’re still looking for reason to believe in Bitcoin, try looking to the leading minds of finance, technology, and enterprisers.

  • Eric Schmidt, CEO of Google has endorsed Bitcoin, saying “Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value.”
  • Rick Falkvinge, founder of the Swedish pirate company said, “Bitcoin will do to banks what email did to the postal industry.” Ben Bernanke, a former chairman of the Federal Reserve stated, “[Virtual Currencies] may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.

It is not just individuals in the finance sector that are excited by Bitcoin.  Some of the most famous names from the technology sphere are similarly enchanted with it and its future potential.

  • Paypal founder Peter Thiel stated, “I do think Bitcoin is the first encrypted money that has the potential to do something like changing the world.”  
  • John McAfee, founder of McAfee, highlighted the block chain elements of Bitcoin when he said: “You can’t stop things like Bitcoin. It will be everywhere and the world will have to readjust. World governments will have to readjust.”

The praise is not just restricted to the financial and technical sector though, business leaders, government leaders and even educators have realized Bitcoins importance and relevance in current and future markets.  

  • Campbell Harvey, Professor of Finance at Duke University, stated in 2015, “For me, though, I look at Bitcoin not just as a currency, but what it could do in the future in other applications.  Think of the Bitcoin technology as a way to exchange and verify ownership. It’s like getting into your car with your smartphone.  You present cryptographic proof of ownership. You’re the owner and it’s verified through this common ledger. The car is able to identify that it is your car, and so the car starts. You’re done.”
  • Even former Vice President and Nobel Prize winner, Al Gore is a fan of Bitcoin. “I think the fact that within the bitcoin universe an algorithm replaces the functions of [the government] … is actually pretty cool. I am a big fan of Bitcoin.”

Independent Reviews of Bitcoin for IRAs / 401ks

Clearly the experts agree that Bitcoin itself is taking off as a currency. But what about as a retirement investment? Not surprisingly, the consensus is in support of including Bitcoin or cryptocurrency as part of a diverse retirement portfolio.

“The world’s hottest asset is the newest way to invest for retirement.”

Wall Street Journal Quote

“More and more savers are taking a chance and investing in something called a Bitcoin IRA.”

CNBC Logo

“Bitcoin: It’s a red hot asset that’s now being used as a retirement investment.”

“A Bitcoin IRA is a high-growth potential investment available to you to develop a diverse portfolio.”

“New consumer interest in bitcoin is trickling up into traditional retirement savings products and tax-advantaged vehicles like IRAs.”

Coindesk Logo

“Bitcoins are the best investment in my retirement account.”

MarketWatch Logo

Bitcoin Price Projections

In the first quarter of 2017, the price for a single bitcoin surpassed the price of 1oz of gold; breaking its all-time high and reaching $1,400. The cryptocurrency is up 40% in August 2017 alone and has now reached $64 Billion in total valuation.

Experts across the spectrum have all predicted that Bitcoin will continue its incredible momentum. Here are just a few of the growth projections of Bitcoin from the experts:

$7,500 by 2018

From $5,000 to $100,000 in 10 years

$10,000 by 2018

$500,000 by 2030

How to Buy Bitcoin for an IRA

If you’re ready to start exploring a retirement investment in Bitcoin, there are two paths to take: Do-It-Yourself or Full-Service. Each process involves the use of a custodian, although the role taken by that custodian will greatly differ.

What is a Bitcoin IRA custodian?

An IRA custodian is a financial institution that holds your account’s investments for safekeeping and sees to it that all IRS and government regulations are adhered to at all times. Bitcoin IRA’s are self-directed, which means a custodian allows you to invest outside the more traditional world of stocks, bonds and mutual funds. A proper custodians is directly approved by the IRS and authorized to hold assets.

For digital currency IRA’s, you need to be every careful in your choice of custodian. It’s far too easy to violate IRS rules and regulations, and the penalties for doing so can be severe. You’ll want a custodian that can ensure the entire process of rolling over funds from a traditionally funded IRA into Bitcoin is entirely IRS compliant.

Do It Yourself – If you go down this path, most of the process will be on your shoulders to setup and ensure IRS compliance. There are a number of investment companies now offering to help with the initial step of a “checkbook” or LLC model of a self-directed Bitcoin IRA, but after that initial step you are on your own.

You will have to:

  • Find a trustworthy exchange
  • Execute the trade to Bitcoin
  • Ensure IRS compliance
  • Secure your investment with a digital wallet

It’s quite easy to unwittingly make a prohibited transaction that will get you into trouble with the IRS. Simply put, the account owner and the IRA are two separate entities. So, they should act separately. The government has imposed several regulations to ensure that account owners don’t get double benefits from IRA’s tax protection.

For instance, you apply for a loan and put the IRA account as a security for a loan. In this case, you get a double benefit; using the IRA as a tax-protection asset and collateral. Selling Bitcoins to your own LLC is prohibited, too. Self-directed IRA owners should buy Bitcoins on the name of the LLC.

Another risk is that you have to report the fair market value of your assets in the annual report and pay the fees to the Secretary of the State where your LLC is incorporated. Failing to accurately file the annual reports would strip your IRA of its tax benefits.

Risk Factors – While you take care of all these terms and conditions, there are some day-to-day activities that push you into a prohibited transaction unknowingly. Consider an instance wherein you have used your IRA to purchase a rental home.

If you have done everything right, the IRA takes care of your retirement. If you perform any prohibited transaction such as personally repairing the rental home, using personal funds for repairs or renting to relatives, your IRA loses the tax-favoured status.

In addition, you are subjected to tax and penalties. Compliance is the key here. When you don’t have a deep understanding of these regulations, it is better to hire a full-service company to handle your Bitcoin IRA.

Full Service – A full service company will walk you through the entire process of setting up a Bitcoin IRA from start to finish and ensure total IRS compliance for the transaction. Your custodian is with you every step of the way, including:

  • Setting up a qualified BitcoinIRA.com account,
  • Rolling over funds from an existing IRA custodian (e.g Fidelity)
  • Executing a live trade
  • Moving funds into a secured digital wallet
  • Ensuring IRS compliance

One aspect to investigate when selecting your Bitcoin IRA company is security. In most “do it yourself” companies, you may be required to hold your own security keys. Your investment can only be accessed via a security key, therefore ensuring its safety and security is of the utmost importance.

Consider the scenario where you hold your own key and an unforeseen event like fire, flood, or other disaster wipes out your possessions. If you lose or damage the security, your investment is lost forever.

Luckily, a full-service company can ensure the safety of your security keys for you. For example, BitGo digital wallet generates three separate keys and keeps them in “cold storage” in separate locations.

Of course, one of the aspect of a full-service company is ensuring IRS compliance. A full-service company may charge a larger up-front fee, but the peace of mind and protection of your investment is well worth it.

Infographic: What you need to know about setting up a digital currency IRA

Conclusion

Bitcoin is more than just the latest and greatest “hot commodity.” The technology behind Bitcoin has opened new doors to the way we think about currency and how we use it. As a retirement investment, IRS compliance has legitimized digital assets as a legitimate way to diversify your portfolio. Experts agree, Bitcoin is not going away. In fact, Bitcoin is the future. Get started investing now before the next record-breaking price spike.

Getting started is easy. Let us help.

Take advantage of one of the fastest growing investments of 2017.

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