Financial experts are worried that Bitcoin mania and the overestimation of the safety of Bitcoin IRAs will normalize the idea of using cryptocurrencies as a viable investment option in retirement planning.
It is a retirement savings strategy that is fraught with risk, they say, as well as hidden fees and unpredictability.
Auctus, a retirement planning firm, conducted a survey that found that 6% of people aged 18 to 44 would consider investing in cryptocurrencies in their retirement plans.
Another 14% said that they were unsure of the idea but interested in the strategy.
Douglas Boneparth, founder and president of Bone Fide Wealth, believes that most people don’t grasp the risks they take with their retirement future by considering Bitcoin investing.
“For most people who have an IRA, they’re in no position to be investing this way. Adding that kind of risk doesn’t coincide with most people’s desire to get to retire soundly,” said Boneparth.
Most IRA accounts may feature small investment transaction, underwriting or low balance fees, but such fees would be a few dollars. IRAs usually have no annual or opening fee charges.
Bitcoin, however, involves risk, market volatility affecting valuations and numerous fees.
Ed Slott, a retirement-planning expert and founder of Ed Slott & Co. in Rockville Centre, New York, said that most professional retirement account planners would not suggest their clients invest in cryptocurrencies.
“If you walk into Fidelity and say, ‘Put bitcoin into my IRA, they’ll say, ‘Get lost’,” said Slott.
If you wanted to invest in cryptocurrencies with your retirement account, you can use a self-directed account to invest in anything except collectibles, life insurance and personal property.
For people who want to invest but are unfamiliar with digital currencies and how they work, an account custodian can be appointed to manage the account.
Fees upon fees
Such custodians might charge a $20 monthly fee or a 0.07% fee on your retirement account balance.
There may be a $100 fee to transfer funds, an opening fee and even an asset purchase fee.
Bitcoin investors then would have to pay a 15% fee just for opening the account or adding new funds.
That is just a handful of numerous fees. Bitcoin IRA custodians are not looking out for investors either; they just manage the accounts.
“There’s a litany of fees because they know you can’t get it anywhere else,” Slott said.
Mark Miller, a finance columnist, says that people seriously understand the risks they take by investing in cryptocurrencies.
“Aside from their volatility, cryptocurrencies trade on unregulated online exchanges,” he said.
“Many have been plagued by technical problems and hacks, and the Commodity Futures Trading Commission warned investors to be wary of fraudulent `pump and dump’ schemes,” Miller writes.