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Retirement Planning > Saving for Retirement > IRAs

Why Bitcoin Might Belong in Your Client's IRA

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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.

Unlike some other types of alternative assets, trading in Bitcoin and other types of crypto have some special requirements.

Secure storage is a must for cryptocurrencies. Your clients will need a secure place, often called a crypto wallet, to hold their crypto-assets.

A crypto exchange is where these assets are traded. It works much like a stock exchange, but digital currency exchanges are separate from standard investment markets.

Some self-directed retirement account firms may provide storage or access to a crypto exchange directly or via an alliance with another entity who does. In choosing the right self-directed firm for clients who will be investing in crypto-assets, you will want to verify their capabilities.

Beyond traditional and Roth IRA accounts, many self-directed retirement platforms offer accounts for self-employed clients including SEP-IRAs, Solo 401(k)s and SIMPLE IRAs. This should be a factor in deciding which self-directed platform is best for your clients.

Advantages of Bitcoin in Retirement Accounts

Potential advantages of investing in Bitcoin, Ethereum, NFTs and other crypto-assets in a retirement account include:

  • Cryptocurrencies have a low correlation to traditional asset classes like stocks and bonds. They can provide an added level of diversification to your client’s retirement savings.
  • Tax issues as mentioned above. The tax situation surrounding cryptocurrencies continues to become more complex and confusing. Many investors find themselves triggering taxes unexpectedly on crypto-assets held in taxable accounts. With the volatile price fluctuations of Bitcoin, your clients may find themselves incurring short-term capital gains, which are taxed as ordinary income.
  • Like any asset held in a retirement account, any gains from cryptocurrencies can continue to grow and compound in a tax-advantaged environment whether your client reinvests the gains back into Bitcoin or into another type of asset.
  • Bitcoin and other crypto-assets carry a high degree of volatility but also offer the potential for high returns. The potential upside may be worth the risk for your clients as part of their retirement savings efforts, especially if digital assets comprise a small amount of their overall retirement account holdings.

Disadvantages of Bitcoin in Retirement Accounts

Potential disadvantages of investing in Bitcoin, Ethereum, NFTs and other crypto-assets in a retirement account include:

  • Fees associated with holding Bitcoin and other digital assets in an IRA or other types of self-directed retirement accounts can be high. There may be account setup fees, transaction costs and other fees associated with holding digital assets in a self-directed account. This is an area where you can greatly assist clients by establishing a relationship with a solid self-directed retirement account provider.
  • While your clients don’t want to lose money, this is a possibility with digital assets. The tradeoff of being able to shelter gains in a retirement account is that any crypto capital losses incurred in a retirement account will not be deductible.
  • If your client invests in digital assets or other alternatives in a self-directed IRA or other retirement account, they will generally need an additional retirement account at a conventional custodian to invest in more conventional investments like ETFs, stocks and mutual funds.

Asset Allocation and Asset Location

Ultimately, there are two recommendations advisors must make. First, is Bitcoin or other cryptocurrency an appropriate asset class for your client? While digital assets are different from selecting between an ETF or a mutual fund, it’s still an issue of whether these assets are appropriate for your client. This may be colored a bit by your client’s level of interest in crypto.

If digital assets are appropriate for your client, then the asset location decision comes into play. It is not an either-or decision where cryptocurrencies can only be held in a taxable account or in a retirement account. It’s incumbent upon you as their advisor to look at the pros and cons of where to hold these assets for each client.


Bitcoin and other digital assets are all over the news. Your clients may be asking you whether these are appropriate for them, including as an asset in an IRA or self-employed retirement account. You will want to have a crypto strategy for clients for whom these investments are appropriate, including a self-directed retirement account provider that you have fully vetted.