Can You Hold Crypto in an IRA? Understanding the Rules and Benefits

As the financial landscape evolves, more investors are looking beyond traditional assets to enhance their retirement savings. Cryptocurrency, with its growth potential and unique characteristics, has emerged as a compelling option. Follow along as we outline how to invest in crypto within an IRA and highlight the potential benefits of integrating it into your retirement strategy.

Can you buy crypto in an IRA?

The short answer is yes; however, it cannot be held in a regular IRA or retirement account at a traditional financial institution due to restrictions on conventional retirement accounts. Since 2014, the IRS has allowed investors to hold crypto in their IRAs. To buy crypto in your retirement account, you have to open a self-directed IRA or other retirement account type with a qualified custodian like Equity Trust.

Self-directed IRAs allow investors to choose alternative assets – like crypto, real estate, or precious metals – to invest in instead of traditional options like stocks and bonds, providing a way to diversify your retirement portfolio. Investors can tap into the growth potential of digital assets while enjoying the tax benefits associated with IRAs.

Advantages of a self-directed IRA for crypto investing

Tax Advantages: Utilizing an IRA for crypto offers either tax-deferred or tax-free growth on your investment earnings depending on the type of account. This can enhance the compound interest on your investment. Plus, you can reduce your tax liability as crypto in an IRA is not subject to traditional capital gains tax.

Diversification: Crypto offers an option for diversifying your retirement portfolio outside traditional investment options like stocks and bonds. When in combination with other types of investments, it spreads risk among varying types of assets.  It often has  low or no correlation with traditional markets; therefore, underperforming stocks and bonds would not affect performance of crypto.

Flexibility and Control: With self-directed IRAs, you can choose the type of currency to invest in within your account. This gives you the opportunity to actively manage your portfolio as well as tailor your investment strategy to your risk tolerance and financial goals.

Traditional vs. Roth IRA

Traditional IRAs offer tax-deferred gains. This means that you don’t pay taxes on the earnings until you withdraw from the account. These accounts are also tax-deductible, meaning you can reduce your taxable income through contributions. However, they have Required Minimum Distributions, or RMDs, that require you to begin withdrawing money at a certain age.

In comparison, Roth IRAs offer tax-free gains. While the contributions are made with after-tax dollars, all withdrawals, including earnings, made after age 59½ are tax-free. This can result in significant tax savings, especially if investments have grown substantially over time. Roth IRAs also don’t have RMDs, so the money can continue growing as long as you want.

How do you invest in crypto through an IRA?

You can’t hold crypto in your IRA at most conventional financial institutions. This means you need to find a qualified custodian who can hold the assets in the account. At Equity Trust, investing in crypto in your IRA can be done in three simple steps:

1. Choose a crypto provider: Equity Trust offers several providers to choose from when deciding to invest in crypto through an IRA. You can determine which works best for you.
2. Fund an IRA: Next, the Equity Trust account will need to be opened and funded. You can complete this online or by calling for assistance.
3. Begin purchasing crypto: You can then start investing in crypto with your retirement account. You can buy, sell, and view your balance with ease on myEQUITY, our online account management platform.

How is crypto traded and stored?

Equity Trust offers online trading through a state-of-the-art platform combined with leading industry providers. The platform is structured so you don’t have to manage separate wallets or providers; everything is built within your myEQUITY account. The crypto is held in a cold storage environment and is protected under the various policies governing crypto transactions.

Learn more about investing in crypto in your IRA

Ready to take advantage of the growth potential and diversification benefits of cryptocurrencies in your retirement portfolio? Learn more about how a self-directed IRA can help you invest in crypto securely and efficiently. Get started today and explore the innovative ways you can enhance your retirement strategy with cryptocurrency investments.

Prior to making any investment decisions, please consult with the appropriate legal, tax, and/or investment professionals for advice. As a self-directed IRA custodian, ETC will not provide investment advice or risk assessment of any investment. The digital currency market may experience a high degree of volatility and clients should consult with an investment professional before any investment is made.

Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.