If you understand why bitcoin is an asset to hold for the long term, you may also wonder how to take advantage of retirement tax structures to minimize your tax expenditures. There are many different ways to approach holding bitcoin in an IRA, and as with everything in bitcoin, each has its trade-offs. Let’s look at how the many different bitcoin IRA approaches compare.
Sovereignty and Appreciation
Before we can cover these approaches to bitcoin retirement savings, you have to understand the two most important benefits you receive by holding bitcoin: financial sovereignty and purchasing power. That is, the freedom you gain from holding the private keys to a digital bearer asset that exists outside the traditional financial system, and the appreciation of that asset as measured in fiat terms.
Four Most Common Approaches
The four most common approaches to holding your bitcoin in an IRA have different trade-offs related to these two benefits:
- Bitcoin futures ETF: No control of keys, Indirect exposure to price
- Bitcoin spot ETF: No control of keys, Mostly direct exposure to price
- Bitcoin IRA without key control: No control of keys, Direct exposure to price
- Bitcoin IRA with key control: Full control of keys, Direct exposure to price
Four Ways to Hold Bitcoin in an IRA
Bitcoin Futures ETF in a Brokerage IRA (BITO)
One previously-popular way to get exposure to bitcoin with minimal effort was with a futures ETF like ProShares Bitcoin Strategy ETF (BITO). This fund intends to offer investors managed exposure to bitcoin futures. Futures are financial contracts that require involved parties to perform a transaction at a given future date and price. You get no key control—a futures ETF like BITO doesn’t even hold physical bitcoin itself. BITO is still available, but its popularity has declined since the launch of bitcoin spot ETFs in 2024.
Bitcoin Spot ETF in a Brokerage IRA (IBIT, FBTC, GBTC, etc.)
Bitcoin spot ETFs launched in 2024, giving investors access to a bitcoin-proxy financial product with far more direct exposure to bitcoin’s price than the previous futures and trust products. Like bitcoin trusts and futures ETFs, you do not have key control over any physical bitcoin with these products. However, spot ETFs do themselves hold physical bitcoin with custodians like Coinbase, Fidelity, and Gemini. They track the price of bitcoin closely because authorized participants have the right to create and redeem shares of the ETF, keeping price in line with its net asset value.
Bitcoin IRAs without Key Control (iTrust Capital, BitcoinIRA)
Many bitcoin IRA products allow you to buy real bitcoin but don’t offer any key control, like iTrust Capital, BitcoinIRA, Swan Bitcoin IRA, and others. Like the bitcoin proxy products, these products provide no control over your private keys. The largest benefit is that you get direct exposure to the price of bitcoin because physical bitcoin is held on your behalf. In these products, bitcoin is titled to you and in some cases, it is possible to send it in-kind if you change IRA providers. You may also have more flexibility with trading options compared to a spot ETF.
Bitcoin IRAs with Key Control (Unchained IRA, Choice)
Key control is important for various reasons, but it’s all rooted in bitcoin principles more broadly. Bitcoin allows you as an individual to custody your wealth in a way that was never possible before. If you don’t hold your keys, you ultimately hold a bitcoin IOU, and the key holder can make arbitrary decisions like change associated fees, rehypothecate, and more. Another often-ignored component is that companies holding your keys can fail; you become an unsecured creditor if a company becomes insolvent.
There are bitcoin IRA products on the market that offer complete control of your bitcoin private keys and direct exposure to the underlying asset’s price movement. With these products, you eliminate single points of failure by controlling the keys to your physical bitcoin held in a multisig wallet. One of these products is the Unchained IRA.
Bitcoin IRA Comparison: Spot ETF vs. No-Key-Control IRAs vs. Key-Control IRAs
Convenience
Holding bitcoin proxies like the spot ETF in your preexisting IRA account will be the easiest way to get exposure to the bitcoin price. It’s as simple as typing in a ticker symbol and buying the product, as long as your brokerage offers it. If you’re new to bitcoin and want to experiment with exposing your portfolio, the spot ETFs also let you easily trade in and out of your position at will—albeit only during market hours in most cases. As many trade-offs as these products have, they win this category.
No-key-control bitcoin IRA products are the clear runner-up for convenience since you don’t have to consider key management practices while still getting direct exposure to the bitcoin price.
Price Correlation
If you’re holding a bitcoin proxy like a spot ETF in a brokerage account, you aren’t holding real bitcoin, but you are still holding a well-engineered financial tool that correlates well with the bitcoin price with minimal slippage. Still, the spot ETFs aren’t perfect—nothing will do better than holding bitcoin itself when it comes to price correlation.
Whether you hold the keys to your bitcoin or not, products that allow you to hold physical bitcoin will track the price of the underlying asset, which is preferable for most investors.
Counterparty Risk
Products like the spot and futures ETFs, as well as the no-key-control IRAs, don’t offer you the benefit of key control, which means you’re exposing your wealth to many layers of counterparty risk. For the spot ETFs, for example, you’re trusting the custodian (likely Coinbase, Fidelity, or Gemini), the ETF issuer itself, and the broker where you have a retirement account.
Another side effect of these proxy products and no-key-control IRAs is that you may eventually have to sell and take a distribution in U.S. dollars. With bitcoin IRAs with key control, you can withdraw real bitcoin from your account without penalty at retirement age. As the world shifts to a bitcoin standard, you may not need or want to sell it back to fiat when the time comes.
The adage of old remains true: "not your keys, not your bitcoin." The bitcoin protocol was built to give you the opportunity to take control of your wealth. Controlling your keys minimizes counterparty risk and eliminates single points of failure.
Cost
The cost spectrum across all the bitcoin IRA products is broad, as is the value you receive.
The spot ETF products are relatively affordable—charging as little as 0.2%, which is far better than the hefty 1-2% that you’d pay for the convenience of GBTC or BITO before the spot ETFs were available. Still, the annual fees on spot ETFs can add up to tens of thousands of dollars, depending on your holdings and the appreciation of bitcoin.
Among the bitcoin IRAs that don’t offer key control, iTrust Capital is currently the most affordable approach to holding bitcoin in an IRA. On the other hand, competitors like BitcoinIRA are a bit more mysterious as to what their fees are—making it unclear how they compare on this front.
The Unchained IRA has a higher one-time setup fee, but lower annual fees and trading fees, leading to much lower fees over time.
Key Takeaway
The only way you can hold bitcoin in an IRA while gaining the two benefits it was built for, limited supply and key control, is to hold bitcoin in a key-control bitcoin IRA.
While a key control IRA may require more from the client to learn to hold bitcoin keys correctly, we believe it’s time well spent to receive a basic bitcoin custody education. Multisig custody, in particular, eliminates single points of failure and trusted third parties.
Spot ETFs held in a brokerage account can also be a decent option if you want to immediately get exposure to bitcoin as you learn more about the technology and the importance of key control. But know that they can be costly in the long term, especially if the price of bitcoin rises dramatically over the coming years, and expose you to multiple layers of counterparty risk.
Onboarding, Bitcoin IRAs, and Beyond
If you already hold a bitcoin proxy product in an IRA at a traditional financial institution, we make it easy to roll over into physical bitcoin with key control through an Unchained IRA. And if you already have a physical bitcoin IRA, we can even take rollovers in-kind if your provider supports withdrawals.
We’re also your partner for Concierge Onboarding and beyond, so you can get help from bitcoin experts on your self-custody journey—no matter where it takes you. Anyone can learn to securely hold their bitcoin keys with the help of our Concierge team. Book a complimentary consultation for more details.
This article is provided for educational purposes only and cannot be relied upon as tax or investment advice. Unchained makes no representations regarding the tax consequences or investment suitability of any structure described herein, and all such questions should be directed to a tax or financial advisor of your choice.
Originally published on Unchained.com.
Unchained Capital is the official US Collaborative Custody partner of Bitcoin Magazine and an integral sponsor of related content published through Bitcoin Magazine. For more information on services offered, custody products, and the relationship between Unchained and Bitcoin Magazine, please visit our website.
Frequently Asked Questions
Should You Invest in Gold for Retirement?
This will depend on how much money and whether you were able to invest in gold at the time that you started saving. If you're unsure about which option to choose then consider investing in both.
Gold is a safe investment and can also offer potential returns. Retirees will find it an attractive investment.
While many investments promise fixed returns, gold is subject to fluctuations. This causes its value to fluctuate over time.
This does not mean you shouldn’t invest in gold. You should just factor the fluctuations into any overall portfolio.
Another benefit to gold is its tangible value. Gold is less difficult to store than stocks or bonds. It can also be carried.
You can always access your gold as long as it is kept safe. Plus, there are no storage fees associated with holding physical gold.
Investing in gold can help protect against inflation. Because gold prices tend to rise along with other commodities, it's a good way to hedge against rising costs.
It's also a good idea to have a portion your savings invested in something which isn't losing value. Gold usually rises when the stock market falls.
Gold investment has another advantage: You can sell it anytime. You can easily liquidate your investment, just as with stocks. You don't have to wait for retirement.
If you do decide to invest in gold, make sure to diversify your holdings. Do not put all your eggs in one basket.
Do not buy too much at one time. Start small, buying only a few ounces. You can add more as you need.
Keep in mind that the goal is not to quickly become wealthy. Rather, it's to build up enough wealth so you won't need to rely on Social Security benefits.
And while gold might not be the best investment for everyone, it could be a great supplement to any retirement plan.
How much gold do you need in your portfolio?
The amount of capital required will affect the amount you make. A small investment of $5k-10k would be a great option if you are looking to start small. As you grow, it is possible to rent desks or office space. This will allow you to pay rent monthly, and not worry about it all at once. You just pay per month.
You also need to consider what type of business you will run. In my case, I am running a website creation company, so we charge clients around $1000-2000/month depending on what they order. So if you do this kind of thing, you need to consider how much income you expect from each client.
As freelance work requires you to be paid freelancers, your monthly salary won't be as high as mine. This means that you may only be paid once every six months.
You need to determine what kind or income you want before you decide how much of it you will need.
I recommend starting with $1k-$2k in gold and working my way up.
What precious metals can you invest in for retirement?
Gold and silver are the best precious metal investments. They are both easy to trade and have been around for years. These are great options to diversify your portfolio.
Gold: Gold is one of man's oldest forms of currency. It is also extremely safe and stable. This makes it a good option to preserve wealth in uncertain times.
Silver: Silver is a popular investment choice. This is a great choice for people who want to avoid volatility. Silver tends to move up, not down, unlike gold.
Platinum: This precious metal is also becoming more popular. It's like silver or gold in that it is durable and resistant to corrosion. However, it's much more expensive than either of its counterparts.
Rhodium. Rhodium is used as a catalyst. It is also used in jewelry-making. It is also quite affordable compared with other types of precious metals.
Palladium (or Palladium): Palladium can be compared to platinum, but is much more common. It is also cheaper. This is why it has become a favourite among investors looking for precious metals.
Is it a good retirement strategy to buy gold?
Although gold investment may not seem appealing at first glance due to the high average global gold consumption, it's worth considering.
The most popular form of investing in gold is through physical bullion bars. But there are many other options for investing in gold. You should research all options thoroughly before making a decision on which option you prefer.
If you're not looking to secure your wealth, it may be worth considering purchasing shares in mining equipment or companies that extract gold. Owning gold stocks should work well if you need cash flow from your investment.
ETFs allow you to invest in exchange-traded funds. These funds give you exposure, but not actual gold, by investing in gold-related securities. These ETFs often include stocks of gold miners, precious metals refiners, and commodity trading companies.
Should You Open a Precious Metal IRA?
It is essential to be aware of the fact that precious metals do not have insurance coverage before opening an IRA. There are no ways to recover the money you lost in an investment. This includes any loss of investments from theft, fire, flood or other circumstances.
You can protect yourself against such losses by purchasing physical gold and silver coins. These items have been around for thousands of years and represent real value that cannot be lost. If you were to sell them today, you would likely receive more than what you paid for them when they were first minted.
If you decide to open an IRA account, choose a reputable company that offers competitive rates and products. Consider using a third-party custody company to keep your assets safe and allow you to access them at any time.
If you decide to open an account, remember that you won't see any returns until after you retire. So, don't forget about the future!
What precious metal should I invest in?
This depends on what risk you are willing take and what kind of return you desire. Gold is a traditional haven investment. However, it is not always the most profitable. For example, if you need a quick profit, gold may not be for you. Silver is a better investment if you have patience and the time to do it.
Gold is the best investment if you aren't looking to get rich quick. If you are looking for a long-term investment that will provide steady returns, silver may be a better choice.
Statistics
- If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (forbes.com)
- This is a 15% margin that has shown no stable direction of growth but fluctuates seemingly at random. (smartasset.com)
- (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (smartasset.com)
- Gold is considered a collectible, and profits from a sale are taxed at a maximum rate of 28 percent. (aarp.org)
- Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (aarp.org)
