Want to put bitcoin in your IRA? Why experts say you may want to rethink that


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The entire cryptocurrency market climbed to more than $2 trillion over the weekend for the first time since mid-May.

Bitcoin, one of the more popular digital offerings, also surged to more than $48,000, though it has already lost some of those gains.

If you’re like many investors, you may be wondering how you can get in on the action. That could include your retirement savings vehicles, such as individual retirement accounts.

Crypto is a 24/7, 365 market, so you can’t just leave it to chance like every other asset.
Tyrone Ross Jr.
CEO of Onramp Invest

But both bullish and bearish experts on cryptocurrencies say it’s still too early to store those assets in retirement accounts.

Tyrone Ross Jr., CEO of Onramp Invest, a provider of a crypto asset integration platform for financial advisors, is one of them. That’s despite admitting he owns a “whole lot” of cryptocurrencies in his own portfolio.

Ross compares using cryptocurrencies in a retirement account to taking a beautiful, exotic animal outside of its natural habitat and putting it in a zoo. Instead, it should be free, open and borderless, he said.

“As you start to understand it and all the things you can do with it, you would not put it in some of those accounts,” Ross said.

One reason: Because of how the accounts are structured, the average investor will not be able to hold the keys to their cryptocurrency investment, which is essential for managing their money. Without that, it’s just buy and hold, Ross said.

Efforts are underway to eliminate that, he said. Still, other concerns are keeping experts from wholeheartedly recommending cryptocurrencies for retirement accounts.

More vigilance

Meanwhile, financial advisors who work with clients who want to add cryptocurrencies to their accounts need to make sure clients are prepared to take on the higher risks associated with those investments.

They also need to be prepared to update clients on those investments more frequently than once per quarter as with other holdings such as stocks and bonds.

“You should be talking to clients every month about their crypto,” Ross said.

Investors who instead turn to so-called self-directed IRAs can add those investments without an advisor’s help. Yet that will still require more vigilance.

“Crypto is a 24/7, 365 market, so you can’t just leave it to chance like every other asset,” Ross said.

Regulatory risks

Traditional IRA custodians do not currently permit cryptocurrencies in their IRAs. However, self-directed IRAs can.

And with that freedom comes risks.

“These self-directed IRA custodians will put in anything you want that’s legal, but they’re not the police,” said Ed Slott, CPA and founder of Ed Slott and Co. “They’re not going to tell you what’s good or bad or advise.”

Currently, these asset classes are not permitted in IRAs: life insurance and collectibles. Part of the problem with those items is the valuations are subjective, such as with a piece of art work.

Other investments that have been cleared for IRAs, such as stocks, bonds and real estate, have a stated market value, Slott said. The known value is important because those assets are taxed when taken out of an IRA. But with cryptocurrencies, the expected value is not clear, Slott said.

What makes cryptocurrencies difficult to use is that they are not a regulated product at this point, said JJ Kinahan, chief market strategist at TD Ameritrade.

Meanwhile, IRA accounts tend to be among the most highly regulated, which is why many IRA account administrators will not allow clients to put cryptocurrencies in their accounts, he said.

Securities and Exchange Commission Chairman Gary Gensler recently said the agency needs Congress to increase its ability to oversee cryptocurrencies.

In the meantime, the lack of regulation can pose a problem for advisors.

“If you’re working with a client and all of a sudden this goes vamoose, what do you say?” Ross said.

If you still want to invest

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When deciding where to put your money, one thing to remember is the purpose of the account you’re using to invest, Kinahan said. For IRAs, typically that purpose is not to lose money.

“Particularly when it comes to your retirement, you want to make sure that the money you sweat out to earn is at that same level or hopefully significantly higher when you retire,” Kinahan said.

As such, separate margin or trading accounts that are not dedicated to retirement may be a better place to add riskier assets.

If you still are convinced you want cryptocurrencies in your IRA, limit your exposure to 5%, Slott said.

“You get a taste of it in there,” Slott said. “If it goes up, that’s great.

“If you lose your money, it’s not the worst thing in the world, because it’s a very small percentage of your retirement portfolio.”

The volatility, I think, is too much for somebody approaching retirement or already there.
Ed Slott
CPA and founder, Ed Slott and Co.

However, if you’re thinking of just dabbling with a 0.5% or 1% allocation, it’s probably not worth the time and effort, Ross said.

Also be sure to consider your time horizon. The closer you are to retirement, the less risk you can generally afford.

“The volatility, I think, is too much for somebody approaching retirement or already there, because they may not have enough years to recover if the investments, whether it’s bitcoin or any kind of crypto, tanks,” Slott said.

Still, if you’re determined to add cryptocurrencies to an IRA, a Roth IRA is preferable if you expect a large upside over the years because the appreciation would be tax-free, Slott said.

Ross, for his part, agrees.

“That’s the best house in a bad neighborhood,” he said.

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