At nearly a decade old, Bitcoin is the longest-running cryptocurrency in a growing field of competitors. This may have something to do with the fact that Bitcoin continues to lead the industry in terms of market capitalization, even as analysts predict that a “Flippening,” in which a competitor such as Ethereum takes over permanently, may be approaching.

Besides that, Bitcoin has surged in popularity in recent months, nearly tripling in price and setting record after record as it climbs to new highs. This is all in spite of the fact that the cryptocurrency industry is still dealing with how it will integrate itself into the broader investment and day-to-day business worlds.

Because of this recent surge in popularity, many investors are wondering whether to incorporate Bitcoins into their retirement accounts. And if you want to invest in Bitcoin, how should you go about it?

A bitcoin standing up for those who want to invest in bitcoin.

Challenging Financial Climate Favors Bitcoin

One reason to consider an investment in Bitcoin for your retirement is the external financial environment. Hedge funds are an example of how the traditional modes of investing may be collapsing or shifting into new areas. A number of funds have lost stature in recent years, failing to bring in their legendary returns. The phenomenon may have some investors wondering if it will be possible to make substantial fortunes through traditional investing channels going forward.

Even if you’re looking at a less risky means of planning for retirement, concerns about the viability of older models remain. For these reasons—and because Bitcoin-related ventures are attracting huge investments from sources the world over—many retirement planners are looking at cryptocurrencies as they set aside money for later.

How to Add Bitcoins to Your IRA

In order to invest in Bitcoins for your retirement, you’ll need to have a self-directed IRA. Self-directed IRAs permit diversifying Roth or Traditional retirement assets beyond the usual stocks, bonds, mutual funds and certificates of deposit. They permit investors to hold real estate, tax lien certificates, promissory notes, gold and silver, private placement securities and more, as long as they can find a custodian to manage their account. Bitcoins fall into this category of nontraditional investment.

Start by opening a self-directed account through a secure e-sign application. Research the custodian thoroughly before making a deposit. Before you can begin buying Bitcoins, you’ll have to fund the account via a transfer or rollover. Then you must complete an allocation order for Bitcoins. (Note that you can deposit up to $5,500 per year—$6,500 if you are age 50 or over).

Self-directed IRAs have to meet the same regulations as standard IRAs, meaning that investors generally cannot access the money within a Traditional IRA until they are 59½ years old (in a Roth you can access contributions, but not earnings). Earlier withdrawals will face penalties.

Benefits of Using a Self-Directed IRA

There are many benefits to considering a self-directed IRA. One is that you can incorporate new types of assets, such as Bitcoin and other cryptocurrencies not permitted in standard Traditional and Roth IRA accounts as of now.

Beyond that, a self-directed IRA places the investor in charge of his or her own financial decisions. According to BitcoinIRA’s chief strategist, Edmund C. Moy, who is also the former director of the U.S. Mint, “Bitcoin puts the power to create money back into the people’s hands. Furthermore, like gold, investing Bitcoins in an IRA functions best as a small part of a balanced portfolio.”

Things to Keep in Mind

As Moy’s advice suggests, there are some things to keep in mind when considering Bitcoins as part of your retirement investments. First, as with any type of investment, maintaining a properly balanced portfolio is a safer way of ensuring the long-term health of your holdings. Beyond that, Bitcoin and other cryptocurrencies are still in a very nascent state, compared to other types of investment opportunities. Digital currencies are notoriously volatile, experiencing numerous crashes and record-setting highs over the course of just a few months.

Furthermore, the longevity of Bitcoin and other digital currencies remains to be seen. It’s unclear exactly how these new means of value transfer will be integrated into the broader financial world in the years to come. Finally, Bitcoin and its peers still suffer from heightened concern over security from hackers and thieves, even as blockchain developers work to make cryptocurrency investments more and more secure.

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