(NASDAQ) - 40% of millennial investors (aged 25 to 40) want the option to add cryptocurrencies to their retirement plans, according to a Spring 2021 survey by global marketing research consultancy CoreData Research.
Given that Bitcoin surpassed both gold and the S&P 500 last year with a 164% return, such a statistic is not surprising. But what exactly are the options for investors looking for Bitcoin exposure in their retirement portfolios?
Currently only one 401(k) provider, ForUsAll, offers their customers the option to invest their retirement funds into cryptocurrency. In partnership with crypto-exchange Coinbase, ForUsAll customers can invest up to 5% of their retirement funds into cryptocurrencies, including Bitcoin.
Bitcoin IRAs: The Basics
Not a ForUsAll customer? Bitcoin IRAs are a more widely accessible option.
Bitcoin IRAs are a type of self-directed IRA, which are similar to regular IRAs, with a few exceptions.
Bitcoin IRAs require a bit more upfront effort than normal IRAs because rather than investing in mutual funds and ETFs through a brokerage, they involve investing in cryptocurrencies, which involves several intermediaries.
First, rather than a bank or financial institution, Bitcoin IRAs are managed by custodians who hold the IRA and make sure the account is abiding by IRS and government regulations.
Second, in order to purchase cryptocurrencies for your IRA, one will need to utilize a digital asset exchange. Some Bitcoin IRA providers will let people do this through several different exchanges, while some will have exclusive deals with a specific exchange.
Once somebody has purchased crypto, they will need a place to store it. Luckily, most Bitcoin IRA providers offer proprietary storage.
The primary advantage of a Bitcoin IRA as opposed to buying and holding bitcoin directly is the simplified tax process. Every time someone sells cryptos for a profit, they owe taxes. Because IRAs are tax-advantaged accounts, taxes are not owed on any money or securities held within them.
This tax-advantage designation may not be ideal for Bitcoin. Bitcoin is still incredibly volatile, making it a risky investment generally, especially for those closer to retirement. This risk is compounded by the fact that investors cannot deduct losses incurred by investing because of Bitcoin IRAs tax-advantaged status.
Additionally, Bitcoin IRAs involve more fees than other IRAs because of costs associated with trading and storing bitcoin.
