What You Need to Know
- Holding Bitcoin in a retirement account can make sense due to the tax issues associated with digital assets.
- Self-directed retirement accounts must be reviewed for all associated fees plus their capabilities in holding digital assets.
- Whether to hold Bitcoin in a taxable account or a retirement account will vary by client.
Your clients are seeing news stories about Bitcoin and other cryptocurrencies seemingly everywhere. As an advisor, you want to be able to facilitate an investment in Bitcoin for those clients for whom it is appropriate and who have an interest.
Are Bitcoin and other cryptocurrencies appropriate for your client’s retirement accounts? Here are some things to consider.
Is Bitcoin an Appropriate Investment?
Cryptocurrencies are an alternative investment. Traditionally, alternative assets have included direct investments in asset classes like precious metals, real estate, commodities, private equity and hedge funds, or an investment in funds that invest in these assets.
Bitcoin is a bit different from these other types of assets in a number of ways. It’s important to educate your clients as to the pros and cons of crypto to mutually determine if this is an appropriate investment for them.
Cryptocurrency and Taxes
If Bitcoin or other cryptocurrencies are an appropriate investment for your client, investing via a tax-advantaged retirement account like an IRA or self-employed retirement account like a SEP-IRA might make sense.
The tax issues surrounding Bitcoin, Ethereum, non-fungible tokens and other crypto-related investments are complex at best. The Biden infrastructure bill contains provisions that would strengthen the tax enforcement surrounding crypto transactions. The complexity and changing nature of crypto taxes can be reasons to hold Bitcoin in a retirement account.
Bitcoin in Self-Directed Retirement Accounts
Investing in Bitcoin and other cryptocurrencies in an IRA or other types of retirement accounts can be a bit more complicated than simply opening an IRA at one of the standard custodians.
Holding crypto in a retirement account requires that your client have a self-directed retirement account. This is similar to holding assets like rental real estate, livestock, a business or interest in a small business or other types of alternative assets in a retirement account.