Should You Invest in a Bitcoin IRA? – Motley Fool

Should You Invest in a Bitcoin IRA? – Motley Fool

If you’ve decided that the risks of Bitcoin (CRYPTO:BTC) are worth the rewards, you might be worried about getting hit with a big tax bill. When you trade Bitcoin, you’re subject to capital gains taxes, which could be substantial given the cryptocurrency’s wild ups and downs.

One work-around is to invest in a Bitcoin IRA, or individual retirement account. As with any IRA, you’re shielded from paying taxes on transactions within the account. But is that enough to justify the risks of investing your IRA funds in Bitcoin?

Digital currency featuring Bitcoin.

Image source: Getty Images.

What is a Bitcoin IRA?

A Bitcoin IRA is basically just a self-directed IRA, which is an IRA that allows you to invest in alternative assets like cryptocurrency, real estate, and physical gold. Though one platform has trademarked the name Bitcoin IRA, there are multiple brokerages that allow you to invest in crypto with a self-directed IRA.

Per IRS rules, you can’t transfer crypto holdings into a self-directed IRA. You’ll need to fund the account with U.S. dollars, then buy Bitcoin in your IRA.

A self-directed IRA can be either a Roth IRA or a traditional IRA. The regular IRA contribution