Can You Own Crypto in Your Roth IRA?


Internal Revenue Service (IRS) the rules mean you can’t contribute cryptocurrency directly into your Roth IRA, but there seems to be no rule about adding crypto to your Roth IRA through purchase. However, few Roth IRA providers allow you to do this. This has led to the emergence of “Bitcoin IRAs”, retirement accounts designed to allow you to invest in cryptocurrencies.

Just because you can have crypto in your Roth IRA However, it doesn’t mean you should. People may find that including Bitcoin or altcoin holdings can add diversification to retirement portfolios, but their price volatility might not suit someone approaching retirement who can’t afford to ride out a recession.

In this guide, we’ll look at the rules when it comes to adding cryptocurrency to your Roth IRA and keeping it there.

  • Since 2014, the IRS has considered Bitcoin and other cryptocurrencies in retirement accounts as property.
  • This means that you cannot contribute cryptocurrency directly to your Roth IRA, but you can add it to your IRA through a purchase.
  • The difficulty is that few traditional IRA providers will allow you to do this.
  • One solution 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.

Can you have crypto in a Roth IRA?

When Roth IRAs were invented in 1997, cryptocurrencies didn’t exist. Because of this, there is no specific mention of cryptocurrency in the part of the tax code that deals with Roth IRAs. However, applicable regulations define what types of financial assets you can contribute to a Roth IRA and what you can have in one.

These rules mean that you cannot add crypto directly to your Roth IRA. This is because Section 408(a)(1) requires contributions to IRAs to be made in cash. And IRS Revenue Resolution 2019-4 makes it clear that cryptocurrency is not cash. Although “cash” is not defined in the regulations, it apparently means United States currency in the form of dollar bills, coins, or checks.

However, you can add cryptocurrency to a Roth IRA through purchase. There are some rules that prohibit Roth IRAs from having “collectibles” and “currency,” but they don’t seem to apply to cryptocurrencies. Because cryptocurrency is property, an IRA can acquire cryptocurrency through purchase without breaking rules that prohibit 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 the coins are taxed in the same way as stocks and bonds. Therefore, cryptocurrency held in a Roth IRA has an income tax basis for purposes of measuring gain or loss upon the occurrence of a taxable sale or exchange.

In principle, Roth IRA holders looking to include digital tokens in their retirement accounts need only find a custodian willing to accept cryptocurrencies. The problem is that few of the “traditional” Roth IRA providers are willing to let you hold crypto as part of them.

In principle, there is no rule against holding cryptocurrency in a Roth IRA. However, it can be difficult to find a Roth IRA provider that will allow you to do this.

The Alternative: Bitcoin IRA Accounts

Fortunately for those committed to including Bitcoin in their IRA accounts, Self Directed IRAs (SDIRA) they more frequently allow alternative assets such as cryptocurrencies.

Recently, custodians and other companies designed to help investors include Bitcoin in their IRA accounts have become increasingly popular. Some of These companies include BitIRA, capital trustand Bitcoin IRA, one of the early leaders in the field.

However, this doesn’t necessarily mean that having crypto in your Roth IRA is a good idea. Some argue that cryptocurrencies can add further diversification to Roth IRAs, and others that cryptocurrencies (and the Roth IRAs that contain them) will continue to increase in popularity and price well into the long-term future. On the other hand, cryptocurrencies are characterized by extreme volatility, and this represents a great risk for those investors who are approaching retirement and cannot wait for a recession to pass.

You should also be aware that crypto IRA fees are typically much higher than “traditional” IRAs. For example, setting up a $50,000 self-directed IRA to operate can cost up to $6,000 in fees during an initial setup, depending on the provider. There are also recurring custody and maintenance fees charged by the providers of such services, and fees associated with individual cryptocurrency transactions. A typical provider may charge 3.5% per transaction for each purchase and 1% or a flat fee for each sale. Cumulatively, those fees could negate the tax advantages offered by IRAs.

Can you have crypto in a Roth IRA?

You can have crypto in your Roth IRA, but you can’t contribute directly. Since 2014, the IRS has considered Bitcoin and other cryptocurrencies in retirement accounts as property.

Is a Crypto IRA a Good Investment?

Depends. While having crypto in your IRA can increase diversification, the extreme volatility of crypto makes it a poor choice for a retirement investment.

Can I have multiple Roth IRA accounts?

You can have multiple traditional and Roth IRAs, but your total cash contributions can’t exceed the annual maximum and your investment options may be limited by the IRS.

The bottom line

Since 2014, the IRS has considered Bitcoin and other cryptocurrencies in retirement accounts as property. This means you can’t contribute cryptocurrency directly to your Roth IRA, but you can add it to your IRA through a purchase. The difficulty is that few “traditional” IRA providers will allow you to do this.

There are alternatives: crypto IRAs, which allow you to invest in crypto for your retirement accounts. Investors should carefully consider whether these accounts are suitable for retirement planning, given the high fees and extreme volatility of cryptocurrencies.