Lots of people now want to start a Bitcoin IRA because of the tremendous increase in value that cryptocurrencies experienced during 2017. Doing so, as most financial experts agree, is actually a very good idea. After all, diversification is key to a strong investment portfolio. That being said, it is important that you know what you’re doing and that starts with picking the right type of IRA.
How to Start a Bitcoin IRA
The IRS has not explicitly forbidden investing in cryptocurrencies as part of individual retirement accounts (IRAs). In fact, the only things they do explicitly prohibit are collectables and life insurance. However, just because something is allowed doesn’t mean every custodian or IRA provider also offers it. That is because most IRA providers offer “captive accounts” only, which means they have a set of asset classes on offer that you can choose from, and you cannot deviate from this.
Hence, what you need to do is find a self-directed IRA. There are no differences in terms of funding limits or tax benefits associated with this type of IRA. However, the big difference is that you can choose whatever asset you like, so long as the law allows it. Again, the only things that aren’t allowed by law are collectibles and life insurance.
The big difference between captive and self-directed IRAs is who offers them. The vast majority of people will automatically sign up to a captive IRA because they are not financial experts themselves and simply want things to be done for them. Unfortunately, if you want to invest in Bitcoin, you will have to change that around. And yes, that does also mean you will have to learn a thing or two about making investments. As previously stated, diversification in an investment portfolio is very important. Hence, you should not allocated more than 10% to any asset class in your IRA. But with a self-directed IRA, you are responsible for 100% of the assets contained within them. Hence, you will need to gain a significant understanding about not just cryptocurrencies, but also all other types of assets you are interested in.
This may sound somewhat frightening, but you can do it. There is lots of information out there about investing and you’ll be happy to know that cryptocurrencies are, in fact, not overly complicated. If you are a part of today’s modern, digital society, then you will also understand how these currencies work. And, because there is now so much interest in these currencies as an investment, more and more IRA providers are also starting to offer advice, information, and education on cryptocurrencies.
Take your time to do your research in terms of the different IRAs that are available to you. You must choose a self-directed one, but it is up to you to determine whether that is a Roth, a traditional, or a rollover IRA, which is another thing you do have to consider. Your financial future is at stake, so weigh up every option carefully.