Over the past few months, the idea of adding bitcoin or crypto to one’s retirement account has really picked up steam. There are many individuals out there that are looking for ways to diversify their portfolios as a means of preparing for retirement later in life, and thus they are looking to add cryptocurrencies to an IRA or similar product.
a Crypto-Based IRA Doesn’t Have That Many Possibilities
For many, inflation has become a very scary reality. Prices of goods and services are going up every two minutes. The housing market has spun out of control, and governments around the world are printing money like it grows on trees and pumping it back into their economies following the COVID pandemic that has ultimately ravaged the world during the past year and a half.
However, some analysts claim that while crypto can serve several lofty purposes, putting it into an IRA or retirement account is not the best idea.
One of the big benefits of an IRA is that whatever goes into it becomes tax deferred. You do not have to pay taxes on the money that’s stored in the account until you pull it out. From there, you will owe whatever was not paid when it was initially put in. The same applies to crypto; those who put digital assets into their IRAs will not have to pay taxes on those crypto units for many years.
However, while this seems tempting in the short term, many analysts say that the costs associated with putting crypto in one’s portfolio can ultimately mean you wind up paying a lot more even before you’re ready to use the funds. In addition, most IRAs are self-directed, meaning you’re fully in charge and on your own. You don’t have an expert telling you what to do, so if you inadvertently break a rule, you may wind up paying for it.
Anjali Jariwala – a certified financial planner with Fit Advisors – commented on the prospects and risks associated with putting crypto in one’s retirement account. In an interview, he stated:
Self-directed IRAs usually require a specialized firm or custodian, and the costs can be sizable due to the additional compliance and IRA requirements. If you fail to abide by all the rules, then your account may lose its tax-deferred status.
Volatility Is Also a Problem
The Securities and Exchange Commission (SEC) has also warned of the heavy potential for fraud associated with crypto. The agency also commented on the volatility of these assets, meaning that they could ultimately sink so low they disappear in the future, which wouldn’t be good given that retirement funds are designed for one’s expenses after they leave the workforce. The agency said in a statement:
While a broader set of investment options may have appeal, investors should be mindful that investments in self-directed IRAs raise risks, including fraudulent schemes, high fees and volatile performances.
