If you’ve decided that the risks of Bitcoin are worth the rewards, you might be worried about getting hit with a big tax bill.
One work-around is to invest in a Bitcoin IRA, or individual retirement account.
A Bitcoin IRA is basically just a self-directed IRA, which is an IRA that allows you to invest in alternative assets like cryptocurrency, real estate, and physical gold.
A self-directed IRA can be either a Roth IRA or a traditional IRA.
Imagine if you had maxed out your Roth IRA with Bitcoin in 2016, when the contribution limit for someone younger than 50 was $5,500.
The stock market undergoes a correction, meaning a drop of 10% or more, roughly once every two years.
Those returns may pale in comparison to what we’ve seen from Bitcoin in recent years, but in retirement planning, achieving predictability is essential.
First and foremost, investing in Bitcoin in an IRA or anywhere else only makes sense if you’ve carefully assessed your risk tolerance and decided you can stomach huge swings.
In general, speculative assets shouldn’t make up more than about 5% to 10% of your overall investment portfolio.
Only consider it if you’re on track to retire comfortably with savings from other retirement accounts, like a 401.