• Once you own tokens, you need to store them securely. With Bitcoin IRAs, your investing platform will likely recommend a custodian that meets IRA standards.  

Although Bitcoin’s price has skyrocketed over the past few years, there are some substantial risks to be aware of before opening a Bitcoin IRA:  

Fees 

Self-directed IRAs, including Bitcoin IRAs, require additional documentation, and you need a custodian to handle your holdings for you. As a result, they tend to be more expensive than traditional or Roth IRAs.  

“Fees vary [by provider], but there tends to be many,” cautioned Weiner. “Transaction fees of 1% to 2% are common, platform fees of $20 to $30 per month, and some custodians charge a custodian fee of 1% and others charge security fees on top of everything else. All in, these are not inexpensive transactions.” 

Below are the fee structures of three major providers:  

Volatility 

Although there is the risk of losing money with any investment, Bitcoin’s price can be particularly volatile. For example, in November 2021, its price reached $65,000. Within one year, its price had plummeted to $15,500 in November 2022. If you’re nearing your retirement age, such volatility could put your future at risk.  

Security  

Because Bitcoin is a digital token, there is the risk of security breaches and hacks costing you money. In fact, the Commodity Futures Trading Commission issued a warning about self-directed IRAs investing in digital currency, cautioning consumers that their digital wallets could be hacked, and, if your assets are stolen, there may not be any way to recover your investment. 

When shopping for a Bitcoin IRA platform or provider, security should be top of mind.  

“You want to do your due diligence,” said Haar. “How long have they [the prospective platforms]  been around? Have they ever had a security incident? How many assets do they custody in terms of number of tokens, but also in terms of dollar value? Do they have any sort of insurance policy against fraud and misuse?” 

Asking those questions can help you avoid vulnerable platforms that may put your money at risk of security breaches.  

The takeaway  

If you want to invest in Bitcoin, using a tax-advantaged account like an IRA could be a potential option. You could add digital currency to your portfolio and take advantage of potential returns.  

However, Bitcoin can be volatile, and there’s no guarantee of future returns. Plus, Bitcoin IRAs involve added fees that can reduce your returns.  

In general, investing experts recommend keeping 2% to 5% of your portfolio allocation in cryptocurrencies like Bitcoin; that allocation will allow you to benefit from cryptocurrencies’ performance while limiting the level of risk.