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Guide to Cryptocurrencies in a Roth IRA | Bitcoin IRA

Guide to Cryptocurrencies in a Roth IRA | Bitcoin IRA

New investors are often curious about the benefits of a Roth IRA vs. a traditional IRA. The most significant difference between the two is how each is taxed.

Investors may make pre-tax contributions to a traditional IRA, and then the money is taxed when it is withdrawn. With a Roth IRA, the money contributed may not be tax-deductible in the contribution year, but it might also not be taxed when it is withdrawn at retirement age. For investors considering long-term cryptocurrency investments, the potential tax benefits make the Roth IRA an attractive option.

So why might investors consider a self-directed Roth IRA?

Overall, Roth IRAs potentially remove or mitigate the risk of a future increase in retirement income taxes. Additionally, assuming that the account grows over time, a Roth IRA holds the possibility of paying fewer taxes on the resulting amount when an investor enters retirement.

Cryptocurrencies in a Roth IRA

To achieve portfolio diversity, you may invest in alternative assets, such as cryptocurrencies within both a Roth or traditional IRA. An option for investors seeking to add digital currency to an IRA would be to consider seeking out an IRA custodian offering alternative investments.

Having a separate account for alternative asset investing may help to diversify a retirement portfolio as a whole. Diversifyingaway from traditional assets, like stocks and bonds, can be important for investors who are looking to prepare for future market adjustments. Investors can use self-directed Roth IRA accounts for many alternative assets, including cryptocurrencies, real estate, and much more.

Investors may choose to roll over portions of existing or entire accounts to an IRA custodian in order to fund a self-directed Roth IRA for cryptocurrency investing. Meanwhile, those without an existing Roth IRA account may also open a self-directed IRA for cryptocurrency with the same custodian and make contributions.

Investing a Roth IRA in Cryptocurrencies

Like any other type of investing, it’s typical for investors to begin by educating themselves about the assortment of cryptocurrency options available. One thing to note would be finding a platform with offerings that cater to the interests of the investor. Bitcoin IRA offers investors more than 60 types of cryptocurrencies to choose from. The more choices available, the easier it is for investors to diversify their portfolio with crypto holdings.

Another route for eager investors to consider could be to divide funds between three of the more popular cryptocurrencies to diversify their entire retirement portfolio. That said, some investors may prefer to deeply research (crypto) projects based on their fundamentals by reading whitepapers, online articles and using social media to learn how other investors rank their prospects.

There is no right or wrong way to go about investing, but it is best to have a strategy that works for you.

Opening a Cryptocurrency Roth IRA

Bitcoin IRA1 offers investors a tax-advantaged2 way to invest in various cryptocurrency assets directly in their self-directed IRAs. Investors can take advantage of the simple process of opening an account. The 24/7 platform can be accessed from mobile devices, allowing for easy trading and management of your Roth IRA.

2Some taxes may apply. We recommend you consult your tax, legal, and investment advisor.


Questions on getting started with cryptocurrency investing in your Bitcoin IRA account? Our specialists are here to help! Call us at 877-936-7175 or email us today.

Recommended article: Why Investors are Banking on Bitcoin Instead of Social Security

How Much Will a Bitcoin Roth IRA Lower My Taxes?

Many investors look to IRAs at tax time as a quick way to cut their tax bills. A Roth IRA won’t give you the immediate gratification of an upfront tax deduction that will boost your refund for this year, but it will lower your future taxes by a considerably larger amount. Let’s look more closely at how the Roth IRA works, and how much in tax savings you’re likely to get by using one.

How Bitcoin Roth IRAs are different from traditional IRAs

It’s easy to get confused between different types of IRAs. For now, know that the traditional IRA does give you the chance to lower your taxes right away, as contributions to traditional IRAs are generally tax deductible. The deduction usually results in tax savings that correspond to your marginal tax bracket. So if you’re in the 25% bracket, then a $4,000 traditional IRA contribution would typically save you $1,000 on your tax bill.

Roth IRAs, however, don’t get this type of favorable tax treatment from the IRS. You’re not allowed to deduct your contributions to a Roth IRA, effectively forcing you to use after-tax money to put toward your retirement savings in these vehicles. Instead, the IRS gives Roth IRA holders a big benefit when it comes time to make withdrawals from their accounts. That means that a Roth IRA typically won’t lower your taxes at all right away, but it can lead to a big payoff later on.

Tax-free distributions from Bitcoin Roth IRAs

When you choose a Roth IRA over a traditional IRA, you sacrifice an upfront deduction for the chance to get tax-free treatment on your retirement account’s income and gains. If you wait until you reach age 59-1/2, and have had your Roth IRA open for at least five years, then distributions you take from your Roth are free of tax, no matter whether that money represents your initial contributions, or the earnings and gains that those contributions generated. By contrast, money that you take out of a traditional IRA is generally subject to income tax in the year that you withdraw it.

For example, take the same $4,000 IRA contribution mentioned above. Say you make that contribution early in your career, and earn an average annual return of 8% on your money over 30 years. By the end of that time, assuming you’ve made no additional contributions, your IRA will have grown to about $40,000. If you used a traditional IRA, that $40,000 would be taxable when you withdraw it, producing a $10,000 tax bill if you remain in the 25% bracket.

If you use a Roth IRA, then the full $40,000 is free of federal income tax. That effectively saves you $10,000 in the example above — or whatever income tax that amount would have generated based on your particular tax bracket.

One upfront tax break for Roth IRAs

There’s one exception to the rule that Bitcoin Roth IRAs don’t give you an upfront tax break. Some low- and middle-income taxpayers can use the Saver’s Credit to earn tax savings of between 10% and 50% of the first $2,000 they contribute to a retirement account such as an IRA or a 401(k). Bitcoin Roth IRAs qualify for this treatment, as well.

The big savings from a Roth IRA come late in life. By giving you a tax-free source of retirement funds, Bitcoin Roth IRAs provide financial flexibility that other retirement accounts can’t match.