Crypto Roth IRA: How to Build Your Retirement Savings with Crypto

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When discussing Roth IRAs, most people agree that it is important to diversify your investments. After all, almost all of the best Roth IRA choices include investments from a variety of different places to minimize risk. However, many people neglect to mention crypto when it comes to these discussions. 

More and more people are realizing that this neglect is a serious error. Crypto is quickly becoming an important investment that no one should pass up on. 

This article will explore exactly how cryptocurrency investments work with a Roth IRA. After reading, you will have the knowledge necessary to make them work in a way that benefits you. 

Related: Understanding Cryptocurrency Risks of Buying & Investing

How do Cryptocurrencies Work With Roth IRAs?

Before understanding how cryptocurrencies work with Roth IRAs, it is important to understand how Roth IRAs work. These are retirement accounts that have you put after-tax money into investments in the present. In the future, when you withdraw the money, you are not taxed on the gains from your investments. This makes a Roth IRA a great way to start planning for the future, especially if you think you will be in a higher tax bracket later in life. 

The IRS allows you to hold cryptocurrencies within these accounts. However, you cannot transfer crypto you own into an account. You have to make new contributions in cash

While these investments are technically allowed, how a crypto investment works will depend on how the investment is managed. Direct ownership will create a different experience than what is created by using a third party. 

Owning Cryptocurrency Directly in Retirement

A lot of people like to own crypto directly. With a crypto wallet, you have more control over the crypto you own and can take advantage of the benefits without involving a third party. 

Unfortunately, most Roth IRA custodians do not allow this. While it is entirely legal for them to do so, they do not want to or are not ready to deal with investments like this. This could change in the future, but as of now, it forms an unfortunate stumbling block in the process. 

Because of this, it is necessary to seek out a company that does allow you to make Roth IRA investments in crypto. In most cases, you will have to find a company that specifically deals with these types of investments. The upside here is that these companies exist and aren’t hard to find with a simple internet search. The downside is that they typically do not offer much outside of dealing with crypto-specific investments. 

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This means you will likely have to handle your crypto investments through one company and your other investments through another. While this is possible, it is not an ideal situation. 

In addition, there will likely be transaction fees surrounding this type of investment. These are not always too bad but are something to remember when considering retirement plans. You don’t want an unexpected transaction fee to leave you with far less money than you thought you should have. An unexpected oversight like this could throw off your retirement plans. 

Owning Cryptocurrency in Retirement in Other Ways

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If direct cryptocurrency ownership is too difficult to include in your IRA, that doesn’t mean you have to exclude crypto from your portfolio. Many people invest in the success of crypto through indirect methods. Plenty of these are out there, so you can find one that works for you.  

For example, you can invest in stocks that relate to the crypto industry. Companies like Coinbase are publicly traded, yet their success is tied to the success of crypto as a whole. Investing in a company like this is like investing in the entire crypto market. These investments allow you to capitalize on the success of cryptocurrencies and even other blockchain technologies.

You can also invest in a crypto trust. These are entities that actually hold crypto and that you can invest in. Doing so allows you to reap the rewards as the value of the crypto the trust holds increases. This is essentially the closest you can get to owning crypto without actually owning it, as you are only one level of ownership away from it. 

Finally, you can invest in crypto futures. These are products designed to capture the price of cryptocurrencies in a different format. With them, you buy contracts that attempt to predict the price of a specific cryptocurrency or a group of cryptocurrencies. 

Related: What is the Best Way to Invest Money

Positives of Including Crypto in Your Roth IRA

The biggest positive feature of including crypto in your Roth IRA is the potential for a serious payout. Ordinary people are turning into crypto millionaires all the time, and the crypto market appears like it will continue to rise in the future. If your investment pays off, you could potentially make some serious money and not have to pay taxes on the payout. This would mean some amazing things for your retirement. 

In addition, crypto offers another avenue for diversification. Anyone will tell you that keeping diverse investments is a critical part of success. 

Negatives of Including Crypto in Your Roth IRA

Unfortunately, including crypto in your Roth IRA isn’t all positive. There are some negative features and some serious risks to watch out for. 

The biggest is that your crypto returns aren’t guaranteed and are a pretty high-risk investment. Your retirement isn’t something you want to gamble with, so many people tend to avoid banking too heavily on risks like these. 

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In addition, neither owning crypto directly nor working with a third party is optimal. Owning directly can be difficult, as many companies avoid this option entirely. Meanwhile, working with a third party often means dealing with fees. 

Finally, crypto is constantly evolving, and no one is fully equipped to call themselves a master of all things crypto. This means that any crypto-related decision is, at best, an educated guess. 

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Retiring With Crypto

In the end, it is possible to include crypto in your retirement profile. However, you should be aware of what doing this entails and how it will work. You should also know that other options exist and know how to use these options. With this knowledge, you can make the right investments and ensure that your retirement account will be secure. 
Related: Crypto Isn’t Just a Currency, It is a Wealth-Generating Investment