First things first, I refer to Bitcoin index funds as something that tracks Bitcoin’s price performance. While many index funds in stock market track a basket of underlying assets, most Bitcoin index funds track only Bitcoin. Bitcoin index funds are probably the easiest for beginners to start with. Objective This guide is intended to provide a non-exhaustive set of techniques to invest in Bitcoin through retirement plans (401k, IRA, etc.) in the US. Goal: Provide a complete guide on how retirement plans work. Non-goal: Convince you that you should invest in Bitcoin. Non-goal: Explain how to invest in altcoins through retirement plans. (Though you should be able to know how to after reading this.) Non-goal: Motivation There are many types of (most popularly and ) in the US that provide various tax advantages, including tax-deferred and tax-exempt benefits. retirement plans 401k IRA Luckily I happen to work for a company with a good retirement plan, so I decided to take full advantage of it. I’ve been looking for allocations to Bitcoin in retirement plans since 2017. My reasonings of the decision are as below: I am a young professional with 30+ years ahead before retirement. Even if I messed up with this investment decision now, I still have enough time to rebuild my fortune. I am looking for something ( bet) with enough volatility and a potential huge upside in the long-time horizon. Bitcoin is perfect for this. asymmetric I would like a place to minimize the taxation on my potential Bitcoin gains. Retirement plans are perfect for this without too much extra setup. I’d like to exercise a specific portfolio management strategy (with rebalance). However, I don’t want it to affect my pre-existing personal investment.After a 10-year bull market, every asset class is expensive as measured by most metrics. I really would like something with low correlation and under-allocated by most people, e.g. gold and Bitcoin. Concluded from above, I decided to invest in Bitcoin through my retirement plans. Starting with Bitcoin index funds through 401k brokerage account, I gradually learned several ways to invest in Bitcoin directly and indirectly. One day I posted a and received a lot of interests. I decided to share several approaches I learned and dive deep into pros and cons each. tweet Overview (Above is the comparison of different Bitcoin retirement investing approaches.) TL;DR, there are three ways to invest in Bitcoin through retirement plans (ordered from highly recommended to least recommended): Self-directed IRA with self-owned Bitcoin storage Bitcoin index funds Bitcoin IRA custodian The table above gives you a quick look of how each approach ranks in different metrics. Although I ranked them from highly recommended to least recommended, this article will introduce them ordered by the setup easiness from the easiest to the most complex. Please feel free to jump right into the section you are mostly interested in. Bitcoin Index Funds First things first, I refer to Bitcoin index funds as something that tracks Bitcoin’s price performance. While many index funds in stock market track a basket of underlying assets, most Bitcoin index funds track only Bitcoin. Bitcoin index funds are probably the easiest for beginners to start with. At this point, I would only recommend if you’d like to invest in a Bitcoin index fund with your retirement plans. All other options, e.g. Coinbase index fund, , VanEck SolidX Bitcoin Trust ETF, either require you to be an accredited investor or have requirement of high minimum investment. (Go for it if you are an accredited investor.) Grayscale Bitcoin Trust Bitwise Bitcoin fund Grayscale Bitcoin Trust is a Bitcoin trust fund whose shares are registered with SEC and can be traded publicly. Its $GBTC shares are traded on the , an over-the-counter market. It’s easily accessible (can be traded via most brokerages, e.g. Robinhood, TD Ameritrade) with low barrier of entry (no minimum investment required). OTCQX How to Get Started In most 401k plans, there are options to open a self-directed brokerage account. (You can contact directly your company’s 401k provider, e.g. Vanguard, Merrill Lynch, etc.) Once it is opened, you can then buy $GBTC there. If your company’s 401k provider is not flexible enough, you could roll over your 401k funds to self-directed IRA providers (pre-tax 401k to traditional IRA; Roth/after-tax 401k to Roth IRA) and trade over there. Pros Easy & quick setup. No hassle storing and securing your bitcoin. Easily accessible through most existing financial service providers. Cons : You don’t hold your own bitcoin, but rather the index fund does. You always have counter-party risk from these index funds. In addition, your investment will increase the centralization of Bitcoin, which is bad for the Bitcoin ecosystem. NOT your keys, NOT your bitcoin Exorbitant fee: e.g. for $GBTC and similar high fees for others. 2% annual fee Restricted trading windows: $GBTC is traded following the regular trading hours of US stock market( from 9:30 a.m. to 4 p.m. Eastern time on weekdays). Wild premium: $GBTC is not an ETF and does not closely follow the price of underlying bitcoin holdings. Its premium, although better since 2019, can still vary between 1 and 1.45, which results in unexpected wider movement during market swings. (Above is $GBTC premium to underlying bitcoin holdings) Bitcoin IRA Custodian The next option is to use a Bitcoin IRA custodian. This will allow you to buy/sell/hold bitcoin in your IRA accounts. How to start The process is very similar to opening an IRA account. Open an IRA account with a Bitcoin IRA custodian, e.g. . BitcoinIRA Roll over funds from your 401k or IRA into this IRA account. After that, you will be able to buy/sell/hold bitcoin there. Pros Closely tracking Bitcoin price performance: Now that your portfolio performance is closely following Bitcoin’s performance, there is no wild premium on it. Earn interests on your bitcoin: BitcoinIRA recently partnered with Genesis Capital to offer interest on bitcoin you hold in their IRA accounts. Cons : You don’t hold your own bitcoin, but rather the Bitcoin IRA custodian does. NOT your key, NOT your bitcoin Exorbitant fee: As some Bitcoiners noticed, these service providers not only charge (percentile-based) high upfront setup fees but also nontrivial (percentile-based) maintenance/storage/transaction fees during your investment period. (As of Feb 2020.) Self-Directed IRA With Self-Owned Bitcoin Wallet (most recommended by me) My personally most recommended solution is to set up a self-directed IRA to hold bitcoin in a cold Bitcoin wallet. However, this approach is the most complex with the most expensive upfront cost (but will benefit you in the long run). How it works (Above is Self-Directed IRA setup for Bitcoin investing) As shown in the diagram above, you own a self-directed IRA account, which has the flexibility to invest IRA funds into a LLC created and solely owned by you. Once the IRA funds are invested into the LLC, the USD funds are deposited in the business bank accounts owned by the LLC. You can then move $USD funds into the LLC-owned business trading accounts in a crypto exchange to buy/sell bitcoin. : commented that in CA, a Trust might be a cheaper option since you pay $800 annual fee to government for LLC. In other states, a LLC is usually cheaper. NOTE John McCabe The bitcoin in the crypto exchange can now be deposited into the Bitcoin cold wallets owned by the LLC for long-term hodling. The bitcoin owned by the LLC could possibly earn interest with Bitcoin interest accounts, e.g. . However, be aware that many of these Bitcoin interest platforms have only existed for a short time and haven’t built up a reputation. BlockFi There is always a counterparty risk in which platforms can default in the future. How to start Apply for a self-directed IRA account, e.g. , , etc. (Most of paperworks will be done by them.) Madison Trust Entrust Group Roll over funds to this account from your 401K or other IRAs. Create a LLC solely owned and managed by you, which will be only used to invest your self-directed IRA funds. (IRA providers will usually facilitate this process.) Open a business bank account for the LLC. (Most banks seem to be okay with this; however, some Bitcoiners have complained about being turned away from Chase as of Feb 2020.) Authorize the investment of IRA funds from the self-directed IRA to the LLC you manage and deposit the funds into the LLC bank account. Open a business trading account with a crypto exchange. (My experience with is the best, next. Some Bitcoiners had good experience with too. As of Coinbase, it took me several months to open a business account as of late 2018.) River Financial Kraken Binance US Once the business trading account is approved, you should be able to connect it with the LLC bank account and start buying bitcoin. Withdraw your bitcoin into a Bitcoin wallet owned by yourself. (Starting with Ledger, Trezor, but possibly use multi-sig and cold wallets once you’ve learned more and gained more confidence with Bitcoin.) IMPORTANT (Optional) In case you are not satisfied with just holding, you can try earning interests on your bitcoin with . these interest accounts do not have a long track record. The best way to use it is to try a tiny amount. Always keep in mind once you move your bitcoin to those interest accounts, you have direct control of your bitcoin any more. BlockFi WARNING: DON’T WARNING During the entire lifetime of this above setup, please mix the funds/bitcoin owned by the IRA/LLC with your other personal investments. This can cause a lot of trouble, which might not be easy to fix. Please consult with an appropriate tax or financial professional before taking this approach. DON’T Pros : You have direct control of your bitcoin. YOUR KEYS, YOUR BITCOIN 24/7/365 liquidity: You can buy/sell Bitcoin anytime. Flexibility: You have freedom choosing storage, exchanges, interest accounts and many other services. Happy side benefit: You can own other assets under this IRA, e.g. gold, foreign assets, real estate, etc. Cheap maintenance cost over the long time horizon: You pay a (hundreds of dollars per year) for maintaining IRA, LLC and Bitcoin storage. It’s much when your Bitcoin wealth grows bigger over the long run. flat fee cheaper Cons Relatively expensive upfront setup cost: Expect $1,000~$1,500 setup fee varying by states (as of Feb 2020). Much longer setup process: At least one month. (Breakdown: 3-day IRA setup, 1-week LLC setup, 1-day bank setup, 1-week 401k/IRA rollover, business crypto exchange account, 1–week investment authorization from IRA to LLC) I would like to highlight which helped me set up a business crypto trading account within as of Jan 2020 1-month+ River Financial HOURS . The setup is much more complex, which requires a lot of patience and study. Conclusion (Above is the comparison of different Bitcoin retirement investing approaches.) Now that we finished introductions to all three investment approaches, let’s reexamine the table above. As you may see, there is no best solution in all metrics; However, hopefully this guide will help you choose the one that is most suitable for you. Personally I recommend and use from both a Bitcoin ethos perspective and a cost perspective: owning your own bitcoin is important for the Bitcoin ecosystem and maintaining your own monetary sovereignty. self-directed IRA with self-owned Bitcoin wallets It prevents any third party from messing up your fortune especially if you plan to hodl it for decades. It might also be the solution to manage your Bitcoin wealth for the long time horizon. cheapest can be useful when you can’t move your money into a self-directed IRA. (E.g. some company-sponsored retirement plans might restrict 401k rollovers while an employees is still employed at the company.) Bitcoin index funds This article is the first in my Bitcoin Retirement series. I am planning to create an coverage on Bitcoin investing in pension / retirement plans . Please let me know if you are familiar with the setup in places other than the US. Happy to collaborate. NEXT STEP: open-source across nations, institutions and jurisdictions Request For Comments Send me any feedback on Twitter , DM open. @hhua_ I created a public Telegram group to discuss Bitcoin retirement investing: https://t.me/bitcoinretirement Wanna buy me coffee via Bitcoin Lightning payments? :) https://tippin.me/@hhua_ Credits Special thanks to @neverdidanything, for their huge contributions to this article. Thanks , , , , , , Erich Lin, for your valuable comments! Zev Mintz Jimbo BTCKitty Alexander Leishman Miles Suter Steve Lee Jeffrey Czyz Sid Ramesh A friend’s firm, is offering an end-to-end advisory service to help with Bitcoin retirement investing. Request a consultation! Ad : Finney Extra Tips Crypto-friendly self-directed IRA providers: , , , etc. Madison Trust Entrust Group KeyKeeper IRA LLC Registration: self-directed IRA providers usually partner with facilitating companies. Crypto-friendly business bank accounts: Wells Fargo, , Signature Bank, etc. Silvergate Bank Bitcoin exchanges with good business accounts: , , . River Financial Kraken Binance US Bitcoin wallets: , , , , Ledger Trezor Casa Nodl Coldcard Bitcoin interest accounts: BlockFi Disclaimer: This should not be construed as or relied upon in any manner as investment, legal, tax, or other advice. Please consult an appropriate tax or financial professional to understand your personal tax and financial circumstances. I may get compensated by some platforms mentioned below (because of referral links). Do your own research. Enjoy #Bitcoin. Author: Han Hua Collaborators: @neverdidanything, Zev Mintz Last Updated: Feb 18, 2020
