Should You Consider Bitcoin for your Retirement System?

Bitcoin gold coin

As a finance guy, I am continually learning and looking for ways to help folks retire successfully. This includes evaluating – and sometimes discarding – certain investment products and strategies. Investments are just tools that we can use, and the right tool depends on each individual’s unique circumstances. I generally believe that there are no “good” or “bad” investments, only what is appropriate and not.

I recently had a discussion about a relatively “new” investment with an old buddy of mine from college, Tom. We were catching up over couple nice cold beers and some spicy wings at the Quahog Republic’s Dive Bar; it has been one of our favorite watering holes for years. Tom was asking for my opinion on Bitcoin. With retirement about a decade away, he was thinking about buying some Bitcoin in his retirement plan. He had been reading stories of folks online making a lot of money in a very short period of time and wondered if this might help him boost his savings a bit. He joked that with Social Security looking less promising all the time, Bitcoin was starting to look pretty attractive.

But you know, since I am familiar with Bitcoin and how it works, I was very hesitant to tell him to “go for it”.  As I mentioned, it’s just one of many potential tools to help you invest. But investing in it with the money he planned on using to support his retirement in the near future, well, it just might not be the best option for him.

So this week with our time together, I’d like to dig a bit deeper into Bitcoin and some things to consider when thinking about using it to help fund your retirement. For starters, just what is Bitcoin? Well, it’s a type of digital asset that uses what’s called cryptography to record, sign and send transactions over the Bitcoin blockchain. Bitcoin does not exist in physical form. Bitcoin users send and receive coins over the network by inputting the public-key information attached to each person’s digital wallet. 

These days, crypto-backed retirement portfolios are rapidly gaining in popularity. Many salespeople, or brokers, these days are heavily marketing Bitcoin to potential investors for their individual retirement accounts.  A recent survey of financial advisors shows a significant shift to cryptocurrencies. In fact, 14% of the more than 500 financial advisors surveyed said they now use or recommend cryptocurrency to clients, versus fewer than 1% in 2019 and 2020₁. 

A few advantages of bitcoins are they offer some diversification to a portfolio, are expected to grow in popularity and availability, and investors may benefit from favorable tax treatment. Also, part of bitcoin’s appeal for many of its users is the lack of centralized control or regulation by any government or bank. Instead, it relies on a technology known as blockchain to underpin and secure transactions. In addition, investing in Bitcoin for retirement could offer you the potential for substantially higher returns for your retirement portfolio. But if there’s one thing we should understand about any cryptocurrency, it’s that they are extremely volatile and very risky. Even the most aggressive investor will acknowledge that cryptocurrencies such as Bitcoin are extremely risky. 

Another key disadvantage of including bitcoin in an IRA is the fees. Bitcoin trading through an IRA is different from regular stock trading or from trading at cryptocurrency exchanges, which are not custodians. The potential tax benefits of trading bitcoin through a self-directed IRA account come with their own set of challenges. The most important of these is the expense of added fees and tremendous risk. 

Fees for bitcoin trading take on various forms during the investment process, from initial setup fees to custody and trading fees to annual maintenance fees.  There are also recurring custody and maintenance fees charged by providers of such services. For example, a typical provider may charge 3.5% per transaction for each purchase and 1% or a flat fee for each sale. Further, a premature withdrawal may also result in individuals being taxed at the rate of capital gains. Cumulatively, those fees could negate the tax advantages offered by IRA accounts. Given all those fees, it would take substantial gains to justify the investment. That makes a risky bet riskier.

Going beyond the volatility risks, the Securities and Exchange Commission has also warned of the risk of fraud when participating in self-directed IRAs which deal in cryptos. Whereas traditional bank transactions are authorized by financial institutions and controlled by governments through taxation and contracts between parties with known identities, blockchain is decentralized, unregulated and anonymous. Unlike traditional IRA investments, digital currency isn’t regulated like a stock or bond, so there’s less vetting required or recourse for recouping losses from scams. 

There’s also the uncertainty of how the IRS could weigh in on crypto taxes in the future. The agency hasn’t set official rules on some crypto innovations, so retirement investors could get burned when it finally takes a stand. 

As with any financial vehicle, Bitcoin might have a place. I guess there are certainly some savvy crypto investors for whom trading and selling via a retirement account makes. But investing in Bitcoin – in an IRA or anywhere else – only makes sense if you’ve carefully assessed your risk budget and decided you can stomach huge swings and potential significant losses. Bitcoin is typically most appropriate if your risk profile is very aggressive . . . very aggressive.

But for a guy like Tom who sees retirement on the horizon, I suggested he stick with his current portfolio that includes much stronger measures of safety.  You know folks, the type of retirement system that incorporates downside risk mitigation that uses quantitative data to help give yourself the greatest chance of retirement success.  

So as always – be vigilant and stay alert, because you deserve more!

Have a great week.

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, and Mansfield, MA. Insurance offered through its affiliate, CutterInsure, Inc. We do not offer tax or legal advice. Jeff can be reached  at This information is intended to provide general information. It is not intended to offer or deliver investment advice in any way. Information regarding investment services is provided solely to gain a better understanding of the subject of the article. Different types of investments involve varying degrees of risk, including the potential for loss. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Market data and other cited or linked-to content is based on generally-available information and is believed to be reliable. Cutter Financial does not guarantee the performance of any investment or the accuracy of the information contained in this article. Cutter Financial will provide all prospective clients with a copy of Cutter Financial’s Form ADV 2A, Appendix 1, applicable Form ADV 2Bs and Form CRS as well as the firm privacy policy. Please contact us to request a free copy via .pdf or hardcopy. 1.