Can You Own Crypto in Your Roth IRA
DISCLOSURE From time to time, we promote, endorse, or suggest products or services of others. In most cases, we will be compensated at no cost to you. Please read my disclosure for more info.
Is crypto IRA a good idea?
‘The costs can be sizable' One reason experts warn against investing in cryptocurrency through a self-directed IRA is because they're not widely available and don't make sense for most investors. Generally, they can be both risky and expensive to maintain, even without cryptocurrency holdings.
You can’t put crypto into your Roth IRA directly, but it’s possible to add it to your account via purchase.
IRS rules mean that you cannot contribute cryptocurrency directly into your Roth individual retirement account (Roth IRA), but there appears to be no rule about adding crypto to your Roth IRA via purchase. However, few Roth IRAs providers allow you to do this. This has led to the emergence of “Bitcoin IRAs”—retirement accounts designed to let you invest in cryptocurrencies.
Just because you can hold crypto in your Roth IRA doesn’t mean that you should, though. Individuals may find that including Bitcoin or altcoin holdings may add diversification to retirement portfolios, but its price volatility could be unsuitable for somebody approaching retirement who cannot afford to ride out a downturn.
In this guide, we’ll look at the rules when it comes to adding crypto to your Roth IRA, and holding it there.
- Since 2014, the Internal Revenue Service (IRS) has considered Bitcoin and other cryptocurrencies in retirement accounts as property.
- This means that you can’t contribute crypto to your Roth individual retirement account (Roth IRA) directly, but you can add it to your IRA via purchase.
- The difficulty is that few traditional providers of IRAs will allow you to do this.
- One workaround is a crypto IRA, which allows you to invest in crypto for your retirement accounts. However, investors should carefully consider whether these accounts are suitable for retirement planning.
If you’re looking to add cryptocurrency to your Roth IRA, you can’t do it directly. That’s because Section 408(a)(1) requires that contributions to IRAs must be made in cash.2 And IRS Revenue Ruling 2019-4 makes it clear that cryptocurrency is not cash. Though “cash” is not defined in the regulations, it seemingly means United States currency in the form of dollar bills, coins, or a check.
However, there are other ways to invest in crypto through a Roth IRA. For example, you can invest in an exchange-traded fund (ETF) that tracks the price of Bitcoin or other cryptocurrencies—even if those funds don’t actually hold any cryptocurrencies themselves!
But before you get too excited, there are some important caveats. First, you can’t just buy cryptocurrency and add it to your Roth IRA account. There are some rules barring Roth IRAs from holding “collectibles” and “coins,” but they don’t seem to apply to crypto. Because cryptocurrency is property, an IRA may acquire cryptocurrency by purchase without running afoul of rules prohibiting IRAs from holding collectibles or coins.
This means that since 2014, the IRS has considered Bitcoin and other cryptocurrencies in retirement accounts as property, so that coins are taxed in the same fashion as stocks and bonds. Thus, cryptocurrency held in a Roth IRA has income tax basis for purposes of measuring gain or loss upon occurrence of a taxable sale or exchange.
In principle, Roth IRA holders looking to include digital tokens in their retirement accounts only need to find a custodian willing to accept cryptocurrency. The problem: Few of the traditional providers of Roth IRAs are willing to allow you to hold cryptocurrency as part of them.
There is no rule against holding cryptocurrency in a Roth IRA. However, it may be difficult to find a Roth IRA provider that will allow you to do this.
This is our disclosure: This summary is for informational purposes only. This summary is not intended to be a recommendation for or give advice for any company or individual.
Get the Live Well Retire Wealthy Newsletter