Should you consider investing in Bitcoin as a retirement plan?

Data & Research / 12.07.2020

A Bitcoin retirement account could make you look like the coolest grandpa or grandma in town one day. There are benefits and downsides to Bitcoin pension plans, and today we break them down to find out how feasible cryptocurrency IRAs are.

There are plenty of financial alternatives that you can choose as savings account for the autumn of your life. We won’t describe all of them or you risk retiring before reading the entire article.

Instead, we will focus on one of the most popular individual retirement accounts (IRAs) among young employees today: Bitcoin retirement accounts. Read on if you are looking to keep your pension funds outside of the traditional banking system!

Why you need to plan your pension funds now

The future is unwritten and full of inconceivable events. Our grandparents didn’t imagine in the 1980s that they would be “surfing the internet” 40 years later. We can’t predict the technology that will entertain us once we retire. What we know for sure is that, if we make it into our golden years, we should have a sustainable retirement plan.

Traditional pension funds are still widely available, whether they are 401(k) plans or individual retirement accounts. You can use the latter to invest in stocks, bonds, mutual funds, ETFs, but you can also look for more feasible savings alternatives in the long run, and self-directed Bitcoin Individual Retirement Accounts (IRAs) should be right up your alley.

What is a Bitcoin Individual Retirement Account?

A Bitcoin Individual Retirement Account or a BTC IRA is a pension account in the form of a portfolio of cryptocurrency funds. You may invest in various digital assets, but for a better understanding of crypto IRAs, we will use Bitcoin as an example.

If you are new to cryptocurrency, you may confuse BTC IRAs for a way to shelter your pension money from the state. That wouldn’t be farther from the truth. Retirement accounts in cryptos are perfectly legal. The Internal Revenue Service (IRS) already classifies Bitcoin and other digital currencies as taxable property.

The IRS specifies that taxpayers can opt for Bitcoin retirement accounts as long as they can find a custodian willing to accept digital assets as pension funds. Fortunately, companies like BitIRA, Equity Trust, and Bitcoin IRA can provide self-directed IRAs (SDIRAs) solutions and take the custodian role for them.

The benefits of Bitcoin retirement plans

There isn’t a “best strategy” for your retirement funds, but you can rely on diversification as the closest alternative to a perfect pension plan.

Just like you cannot foresee the technological advances that will take place 40 years from now, you cannot predict how the various markets will evolve. Therefore, diversifying your retirement funds as investments in various assets should provide you with indispensable safe nets.

Investing in Bitcoin as a retirement plan gives the much-needed diversification to your investment portfolio. The first and most popular cryptocurrency is still a young newcomer on the financial market, but one that has a stellar potential for the future.

Besides being an alternative to traditional retirement accounts, Bitcoin pension funds come with other benefits, such as:

Quick and cheap transactions

One of the initial purposes of cryptocurrency is to enable almost instant transactions that involve infinitesimal fees. In comparison with traditional banking transfers, crypto exchanges can help you send or receive money in a matter of minutes, and at almost imperceptible costs.

When it comes to Bitcoin retirement accounts, you can rely on speed and cost-effectiveness when transferring pension funds.

Potentially high ROI

When Bitcoin first started trading, the tokens had a measly value. People would use thousands of them to pay for two pizzas. Then, the world discovered that cryptocurrency is more than just the flavor of the week and that it may have mouthwatering returns on investment (ROI). So, by the end of 2017, a single BTC was worth more than $19,000.

After numerous fluctuations, Bitcoin is now trading at around $9,250. Imagine that you had saved 10,000 BTC since the crypto’s humble beginning. You would most probably be sitting on a sizable pension fund today.

Now, consider how your retirement may be like if you invest in Bitcoin as a pension account, and BTC has a similar increase in value in the upcoming decade. In theory, that is quite likely as the popularity of cryptocurrency increases, and the market for individual retirement accounts expands and diversifies.

Why investing your pension in Bitcoin might be risky

The reason why you don’t see people flocking to invest in Bitcoin individual retirement accounts is that things are not as rosy as they may seem at first sight.

Placing your pension in cryptocurrency comes at a risk, which is due to the high volatility defining digital assets. The price of Bitcoin changes constantly and a single unit may differ in price from one week to another by hundreds or even thousands of dollars.

Value fluctuations are not the only thing standing in the way of Bitcoin IRAs. Blockchain technology ensures a high level of security for cryptocurrency accounts. Still, they are not fully impenetrable to scams and hack attacks. Only in 2019, hackers got away with more than $4 billion from crypto crimes.

Last, but not least, cryptocurrency transfers may be low-cost but custody fees may not. Because the market for Bitcoin IRAs is still young, custodian companies charge considerable sums of money to set up your account. Additional services and long-term custody may come very close to the fees that you would pay for a regular pension fund.

The Bottom Line

So, is it a good idea to invest in Bitcoin as a retirement plan?

The answer is not clear, and it differs from one investor to another. On one hand, cryptocurrency offers an excellent opportunity to diversify your investment portfolio. It ensures that you don’t keep all your eggs in one basket and that you stay ahead of the curve by investing in the technology of the future.

It may not be the best idea for small investors that fear volatility and security breaches. Also, it could be unproductive for those who can barely afford to pay the custody fees.

For now, investing in a Bitcoin IRA is a potentially good retirement plan, and only time will tell if it is worth a calculated risk for your portfolio.

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A creative writer in the field of content writing for the past 7 years. Iulian is passionate about his work and his interest in areas such as technology, travel, sports, literature and gastronomy have aided him to the research quality in articles that reflect these themes. Recently, he discovered the Bitcoin and the blockchain technology and he’s a big fan now.