Putting some retirement savings in bitcoin might not be as wild as it sounds. A financial planner explains why.

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• Bitcoin IRAs can diversify your portfolio and potentially come with long-term gains.
• Before getting a bitcoin IRA, though, make sure you're comfortable with extreme volatility.
• You should also assess whether bitcoin IRAs are your best option for investing in cryptocurrency.
• Open a bitcoin IRA with BitcoinIRA and earn a $150 reward. Available for IRA Rollovers, Roth, SEP, Employer Plan 401(k)s and new or existing Traditional IRAs.

If you, like many, believe that bitcoin's price will continue to skyrocket for years to come, the popular cryptocurrency may seem like a natural place to store some of your retirement savings. With bitcoin IRAs , you can do just that.

These self-directed individual retirement accounts offer many of the benefits of investing in a traditional or Roth IRA . But there are certainly downsides.

"Bitcoin is full of risk," says Chris Chen, a certified financial planner at Insight Financial Strategists. And bitcoin IRAs overall may not be the best way to get exposure to digital assets into your retirement portfolio, he adds.

Read on for more on the pros and cons of bitcoin IRAs, and which investors they may make sense for.

The pros of bitcoin IRAs

Saving for retirement throughout your career and taking advantage of compound interest is key to building wealth for your golden years. Including bitcoin in that savings strategy through Bitcoin IRAs can come with benefits, including:

Diversification

When you invest in a traditional IRA, you're likely buying a mix of stocks and bonds from various sectors and of various sizes via investment funds. That blend is important since you're helping to make sure that when one area of your portfolio suffers, another is holding steady or even performing well. "Bitcoin is a non-correlated asset, meaning it doesn't move in tandem with other assets," Chen says. In other words, adding bitcoin enhances that diversification.

Potential for high returns

In September of 2019, bitcoin's price sat at around $10,000 per coin. Fast forward five years, and it costs a whopping $60,000 per coin. If the bitcoin enthusiasts are right and cryptocurrency is here to stay, it could continue to grow over the years.

Tax advantages

Whereas bitcoin traders often have to deal with capital gains taxes when selling their cryptocurrency at a profit, bitcoin traders using IRAs can be sheltered from those taxes while the money remains in the IRA. Self-directed bitcoin IRAs offer many of the same tax benefits as regular IRAs, like tax-deferred growth in traditional IRAs and tax-free withdrawals from Roth IRAs.

The cons of bitcoin IRAs

It's no secret that cryptocurrency is gaining in popularity: 17% of U.S. adults say they've invested in, traded, or used the digital asset at some point, according to a 2023 report from Pew Research. And since bitcoin launched in 2009, it's remained the largest cryptocurrency by market capitalization.

But bitcoin comes with risks and uncertainties, including when you're investing via bitcoin IRA. Those downsides include:

Fees

Nowadays, many brokerages offer zero-commission trading on stocks and ETFs . But the same can't be said for cryptocurrency exchanges . In fact, between commission fees and other costs like maintenance fees, the cost of a bitcoin IRA can add up, Chen says. There is a large cost benefit to not trading via cryptocurrency exchanges, he adds.

Volatility

"There's a reasonable chance that volatility with bitcoin will continue for a while," Chen says."If you're going to invest for retirement, you really have to think in terms of how you will deal with that volatility."

Limitations

Bitcoin IRAs have to adhere to the IRA contribution rules from the IRS. In 2024, that means you can't contribute more than $7,000 (or $8,000 if you're age 50 or older) to a bitcoin IRA. Plus, bitcoin IRAs may come with their own limitations, like requiring you to trade on a certain exchange or offering a limited selection of cryptocurrencies.

Regulatory uncertainty

Regulators like the SEC and CFTC, which oversee companies offering investing products, could limit cryptocurrency's future potential. As policymakers and legislators work on new rules around cryptocurrency investing, we can expect changes to the industry in the coming years.

Bitcoin IRAs aren't the only way to invest in cryptocurrency

As with most financial decisions, whether a bitcoin IRA makes sense for you is going to be extremely personal and depends on your goals, risk tolerance, and time horizon.

But Chen says that the advantages bitcoin can bring to a retirement portfolio are significant, such as the lack of correlation with some of the other more traditional assets. And if you believe the price of cryptocurrency will continue to soar, there's a pretty obvious upside to putting some of your funds toward it.

However, a bitcoin IRA isn't the only way to invest in cryptocurrency, and it might not be the best one, Chen says. While more traditional brokers don't currently offer direct bitcoin trading, you can buy bitcoin futures ETFs — and Chen says that may be a better way to go.

"Having a bitcoin IRA that invests directly through the exchanges is probably not the most cost-effective way of doing it," he says. If you use a regular brokerage account, you're able to use the downswings often seen in bitcoin for tax-loss harvesting . That's not something you can do with bitcoin IRAs.