For Matthew Roed, Social Security is looking a lot less promising than the money he’s stashed away in his BitcoinIRA.
Roed is a registered nurse living in Golden Valley, Minnesota, and he says he’s spent 16,000 hours researching all things bitcoin. His conclusion? Investing in the cryptocurrency is the key to retiring well, and the best way to do it is through a tax-free, self-directed Individual Retirement Account, or IRA.
“Since bitcoin is legally classified as property by the U.S. government and my crypto is inside of an IRA, I knew that I would greatly reduce my taxable expenses due to exponential growth,” said Roed.
At today’s prices, the gamble has so far paid off.
The MBA grad, father, and husband initially invested $30,000 into his BitcoinIRA. Right now, he says that his retirement portfolio is up to $250,000,
While it’s down from its peak of $500,000, Roed still feels vindicated in his conviction that bitcoin is the future.
“No one wanted to listen to me at that time, including my own family,” he said. “I became reclusive and used my frustration to push more and more into getting involved in that market.”
BitcoinIRA
BitcoinIRA launched in May of 2016, offering investors the tax-advantage of an IRA, plus the return of a high-risk, high-reward alternative asset class. It’s similar in nature to other IRAs, except that instead of being funded by gold, cash, and bonds, it’s backed by bitcoin.
The company has more than 100,000 individual account holders, including clients as young as 18. But chief operating officer Chris Kline tells CNBC that 75% of account holders are 45 and over. “It’s not a young kids’ game anymore,” he said.
BitcoinIRA isn’t just dealing in bitcoin either. It now includes a long list of cryptocurrencies, including ethereum and litecoin.
Duke University’s Campbell Harvey thinks diversification is the right call.
“To have a portfolio that has exposure…to a single crypto like bitcoin, that doesn’t make any sense, because while bitcoin is the most important one right now, its share of the overall capitalization of cryptos has decreased through time. There are so many other tokens out there,” Harvey said.
When CNBC first profiled BitcoinIRA in 2017, it served $6 million in transactions for 700 account holders. This month, it passed $1.5 billion in all-time transactions.
There were also far fewer players in the crypto retirement space. The market is now flooded with options.
A recent survey of financial advisors shows a significant shift to cryptocurrencies. 14% of the more than 500 financial advisors included in the report said they now use or recommend cryptocurrency to clients, versus fewer than 1% in 2019 and 2020.
IRA custodian Kingdom Trust offers users the option to diversify in 20 different cryptocurrencies. CEO Ryan Radloff tells CNBC that $2 billion of the $17 billion that it holds for clients is now in cryptocurrency. That’s up from $350 million a year ago.
“The amount of people interested in including bitcoin in their retirement savings…is increasing exponentially,” said Radloff. “People don’t want zombie retirement accounts that only allow you to invest in three target-date funds. They want to have more choice in what they do with their hard-earned money, and they want access to hard-assets that will increase in value over a long time horizon.”
IRA vs. Roth IRA vs. 401(k)
Crypto-backed retirement portfolios may rapidly be gaining in popularity, but there are still some major limitations.
For one, while there are multiple ways to invest your savings for retirement – be it an employer-sponsored 401(k) or a Roth IRA – very few of these vehicles actually allow for an alternative asset like gold or crypto.
That’s why the primary retirement vehicle for holding crypto is self-directed IRAs, explains Shehan Chandrasekera, a CPA and head of tax strategy at crypto tax software company CoinTracker.io.
As the name suggests, it’s an account you open with a custodian, you make all investment decisions, and your income is tax sheltered until your retirement. Kingdom Trust and BitcoinIRA both follow this model.
“So far as retirement accounts go, right now, with bitcoin, it’s IRAs, IRAs, IRAs,” explained Onramp Invest chief executive Tyrone Ross. Onramp sells software that helps financial advisers keep track of client cryptocurrency investments.
“Because it’s considered property by the IRS…that is why you’re seeing the self-directed IRA space explode,” continued Ross. “There’s a lot of regulation to get through before you get it into the 401(k) space.”
There are exceptions. A small 401(k) provider called ForUsAll announced last month that it is now allowing participants to allocate up to 5% of their retirement funds into 50 different crypto assets including bitcoin, which will be custodied and managed by Coinbase.
Companies like BitWage and Digital Asset Investment Management are also trying to fold crypto into traditional retirement plans offered by employers.
But Chandrasekera says that “generally speaking, 99% of 401(k) plans don’t offer bitcoin services,” so there is still a ways to go until bitcoin hits mainstream retirement platforms.
Fidelity, for example, tells clients that retail brokerage customers cannot buy or sell any cryptocurrencies at Fidelity, though they can, theoretically, get exposure to the bitcoin trade through crypto-associated companies trading on the public markets. Same goes for Charles Schwab.
