There is a high probability that when the phrase “emerging trend” comes up, especially in the financial sector, the word “bitcoin” or “cryptocurrency” is nearby. While the virtual currency market continues to grow in astonishing proportions, it appears that the bitcoin is beginning to appeal to people planning for their retirements.
The Growing Popularity of Bitcoin IRAs
A number of bitcoin IRA service firms are emerging with solutions for people looking to use bitcoin in their retirement savings.
2017 was an excellent year for bitcoin as the price increased by an entire degree of magnitude from less than $1,000 in January 2017 to almost $20,000 in December 2017. The current price of bitcoin as at the time of writing this article is somewhere in the $11,000 region.
According to a recent report by CNBC, an Auctus survey of 500 Americans between the ages of 18 and 44 revealed that six percent of individuals were open to using cryptocurrencies in the retirement savings. A further 14 percent were not sure but expressed an interest in the idea.
Auctus is a blockchain-based platform for retirement planning. It is touted as being the first smart contract enabled retirement planning firm capable of providing diversified retirement portfolios that include both crypto and other traditional asset classes.
According to the chief operating officer of BitcoinIRA, Chris Kline, more than 4,500 people have opened Bitcoin IRAs with the firm since it was established in 2016.
How Bitcoin IRAs Work
BitcoinIRA is just one out of the numerous firms that have emerged in the past couple of years. While there are other like BitIRA, BitVestIRA, a quick Google search throws up a multitude of such companies offering the same service.
Bitcoin and other cryptocurrencies do not fall into the category of assets allowed in a standard retirement account. Bonds, stocks, and market funds are typically found in a traditional retirement account.
To diversify the retirement portfolio to include cryptocurrency investments, “self-directed” account is required. This type of account does not have the same sort of restrictions or limitations placed on it, unlike the standard retirement account.
The only assets that cannot be included in a self-directed retirement savings account are personal property, life insurance, and collectibles
Potential Pitfalls and Risks
The process of adding bitcoin to an IRA is quite complicated as a person cannot simply buy bitcoin and send them to an account.
According to the president of retirement services for CLS Partners, Aaron Pottichen, people who want to include cryptocurrency in their IRA have to use services like BitcoinIRA to make the cryptocurrency purchases on their behalf.
There is also the issue of considerably high fees associated with managing a bitcoin IRA. Firms that offer custodial services to help people manage their self-directed accounts often charge as much as $20 per month on top of a $100 fee when transferring funds out of the account.
The cryptocurrency market is still highly volatile, and the risk of a bitcoin IRA bottoming out is ever-present.
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