How To Buy Bitcoin In An IRA – A Beginners Guide

Traditional individual retirement accounts (IRAs) provide future financial security by allowing you to save and invest money for retirement.  Typically, the money is invested in assets like stocks, bonds, and mutual funds.

However, thanks to the volatility of global markets, many people are looking for alternative ways to save for retirement. This has seen the emergence of alternative assets investors can use to invest in IRAs such as Bitcoin and other cryptocurrencies.


Since Bitcoin is a digital asset, you’d need to enroll in a specialized crypto IRA like My Digital Money to start investing. We’ve put together this Bitcoin IRA guide to help you better understand how the process works from start to finish and how easy it is to buy Bitcoin in an IRA.

What Is A Bitcoin Retirement Account?

A Bitcoin IRA is essentially just like any other self-directed IRA, it’s just backed by Bitcoin (or other crypto coins if you prefer). Self-directed individual retirement accounts allow investors to hold a broader range of investments than traditional IRAs. This range of assets includes alternatives such as real estate and cryptocurrency.

With a self-directed IRA, you can invest in what you want, when you want. You are in control of your investment decisions, and there are no restrictions on what types of assets you can hold in your account.

The Retirement Industry Trust Association (RITA), a self-directed IRA industry trade group, estimates that 3-5% of all IRAs have invested in alternative assets.

Investing in Bitcoin and other alternative assets has many perks, including enhancing your investment returns, hedging against inflation, and diversifying your portfolio.

How Does A Bitcoin Retirement Account Work?

A Bitcoin retirement account works much like a conventional IRA. The main difference is that instead of investing in stocks, bonds, and mutual funds, you invest in Bitcoin and other digital assets.

Investors can choose between traditional and Roth self-directed IRAs and benefit from their tax advantages.

With a traditional IRA, you can deduct your contributions from your taxes. This reduces your taxable income and, as a result, the amount of taxes you owe. Paying fewer taxes means you’ll have more money available for your retirement.

On the other hand, Roth IRAs grow tax-free. Because you’re using post-tax money, there isn’t a  tax deduction on your contributions, and all withdrawals during retirement are tax-free.

You face the same annual contribution limits, $6,000 or $7,000, if you’re 50 or older in 2021 and 2022, respectively.

You can also choose to roll over your 401(k) into a Bitcoin IRA. This provides a tax-free way to transfer your funds from your old employer’s retirement plan into your new IRA without any penalties.

While self-directed IRAs are mainly similar to ordinary IRAs, there are notable differences to be wary of.

Instead of the one-stop-shopping experience that most brokerage firms provide, you will need to open a self-directed IRA with a custodian specializing in holding alternative assets.

There are three components you need to keep in mind:

  • Custodian: This is the financial institution that will hold your IRA and facilitate transactions. A custodian provides the same duties banks offer with a traditional IRA. They are responsible for ensuring your IRA is compliant with all IRS rules and will provide you with a list of approved investments.
  • An exchange: The exchange is where you buy and sell Bitcoin and other digital assets. Some custodians have their own exchange programs, while others use third-party ones.
  • A secure storage solution: It’s crucial to store your Bitcoin safely and securely. Most providers provide a digital wallet service, a software program that holds your private keys and public addresses, allowing you to send and receive Bitcoin securely.

Most providers may deliver all three components or only offer selective services and partner with other companies to provide a complete solution.

Advantages of Bitcoin Retirement Accounts

With the growing world of cryptocurrency, Bitcoin retirement accounts are becoming a more sought-after retirement investing option because of their excellent advantages, including:


Diversification is investing in a variety of assets to spread out your risk. Diversifying your portfolio makes you less likely to lose money if one asset class underperforms.

Even though Bitcoin is volatile, it has a low correlation to other asset classes such as stocks and bonds. When the stock market crashes, Bitcoin is likely to go up. Investing in Bitcoin can help you diversify your portfolio and reduce your overall risk.

Potential For High Returns

Bitcoin’s volatility comes with the possibility of high returns. When the price of Bitcoin goes up, you make money. If you had invested $10 in Bitcoin in 2010, it would be worth over $20,000 today.

There is no guarantee that the price of Bitcoin will continue to increase; however, if you invest long-term, the potential for high returns is possible.

Tax Advantages

Bitcoin retirement accounts come with the same tax advantages as traditional retirement accounts.

For instance, with a Roth IRA, you don’t have to pay taxes on your withdrawals in retirement because Roth IRA contributions are made with post-tax money from your paychecks. To break it down, when you get paid, taxes are taken out first, and then your contributions are sent to your Roth IRA.

A traditional IRA, on the other hand, is the opposite. With a traditional IRA, you don’t have to pay taxes on your contributions. However, you will have to pay taxes on your withdrawals in retirement because these contributions are made with pre-tax money.

The tax advantages of Bitcoin retirement accounts depend on your account type.

One of the challenges for Bitcoin investors is tracking trades and calculating taxes owed. However, if you invest in a tax-advantaged account, your provider will track your transactions and calculate the taxes owed by you.

Disadvantages Of Bitcoin Retirement Accounts

Although investing in Bitcoin retirement accounts comes with its advantages, they also hold some disadvantages, including:


Unlike traditional IRAs that allow you to trade for free, most Bitcoin IRA providers charge high fees. Fees may include setup fees, trading and account management fees, and withdrawal fees.

Ensure you know all the costs various providers charge before agreeing to work with one. If not, you could be blindsided with additional fees.

The best option is to find a provider who doesn’t charge fees of any kind.


Bitcoin is a volatile asset, which means its price can go up or down a lot in a short period. This volatility can be a disadvantage if you invest in the short term and need to cash out your investment soon.

Because Bitcoin is volatile, it’s challenging to know when prices are at their best to buy and sell. It’s a complex investment, but one that could be beneficial.

Exchange Limitations

Another disadvantage of Bitcoin retirement accounts is that you are limited to the exchanges that your provider offers. These retirement accounts may limit your ability to trade certain assets and make it challenging to find the best prices.

Finding a suitable IRA platform that allows you to trade with various cryptocurrencies is best. By trading multiple cryptocurrencies, you can diversify your portfolio, reduce risks, and ultimately ensure a growing investment.

Capital Losses

If the price of Bitcoin drastically goes down, you could likely experience capital losses. These losses can dramatically reduce your retirement savings if you don’t have any further investment gains.

A smart investment move would be to diversify the IRA portfolio. With a diversified portfolio, these losses can be used to offset other investment gains and reduce your overall tax bill.


Bitcoin IRAs have many moving parts. Some routine tasks include setting up the account, transferring funds, and managing your investment.

Additionally, the tax law surrounding Bitcoin retirement accounts is complex because the IRS has not provided clear guidance on how to treat Bitcoin for tax purposes.

It’s a wise option to seek professional help to ensure your retirement account is being correctly managed.

This complexity can be a turn-off for some investors who prefer simpler investment vehicles. However, managing your account can be reasonably straightforward once the ins and outs of investing are understood.

How Do Beginners Invest In Bitcoin IRAs?

Investing is a long and challenging process but can be highly beneficial in the long run. There are a few things to remember if you are a beginner investor interested in opening a Bitcoin IRA.

Have An Investment Strategy

The biggest mistake you can make is investing in Bitcoin without a strategy.

It’s helpful to have a plan for long-term investment goals. Some common questions to ask when getting started are:

  • Are you investing for the long term or the short term?
  • How much risk are you willing to take?
  • What are your goals?

These are all important questions that you need to answer before you invest. They will help determine your strategy and the type of investor you want to become.

Once you have a strategy, you can start looking at the different types of Bitcoin IRAs and find the one that best suits your needs.

Find a Reputable Exchange

If you’re planning to do IRA investing yourself, you must look for an exchange that offers low fees and a user-friendly interface. Some of the best exchanges for beginners include Coinbase, Gemini, and Kraken.

The proper exchange will help you spot investment opportunities, trade cryptocurrencies, and save on monthly fees.

Find a Secure Wallet

It is crucial to find a wallet that is secure, non-custodial, and user-friendly. Your digital wallet will keep your cryptocurrency safe from potential cyberattacks. Finding a crypto wallet that doesn’t charge monthly fees will help save money in the long run. Some of the best wallets for beginners include Exodus, Jaxx, and Trezor.

Consult A Financial Advisor

If you are still unsure about investing in a Bitcoin IRA, consulting a financial advisor is a safe and sure way to get started properly.

A financial advisor can help you understand the risks and potential rewards of investing in Bitcoin. They can also help you create an investment strategy that will meet and hopefully exceed your goals.

What To Consider Before Investing In Crypto IRAs

There are several things to consider before you invest in a cryptocurrency IRA.

Don’t rush to add your crypto assets to your 401(k) plans just because it’s possible. Before getting started, it’s essential to take some time to understand the potential risks and rewards of investing in cryptocurrency.

A Crypto IRA is a fantastic way to prepare for the future with an asset that can hedge against inflation, but it’s important to be realistic about what is achievable. Ensure you choose an account that aligns with your investment strategy. This way, you can minimize your fees and maximize your investment returns.

Should You Open A Bitcoin Retirement Account?

Investing in a cryptocurrency IRA can be an excellent way to grow your retirement savings. It can also help you diversify your investment portfolio and hedge against inflation.

At My Digital Money, we help you securely trade cryptocurrencies in a tax-advantaged retirement account with no monthly fees.

Whether a beginner or an experienced investor, we can help you start investing in Bitcoin. Open a free account today to learn more about how My Digital Money can help you invest in Bitcoin.