Filling up your retirement account with bitcoins and ripples is a risky move

In March 2017, bitcoin traded at around $1,000 a coin. Later in December, it was more than $19,000. This week, it's back around $11,000.

Some people are betting that in 2050 — or whenever they are more gray-haired than today — it'll be worth a lot more.

"I don't want to be a loser in the future," said Leya Yusupov, a 37-year-old mother of two who lives in Queens, New York. Last year, she invested 15 percent of her retirement savings in cryptocurrencies. "Some people think I'm crazy."

She's not alone.

Chris Kline, chief operating officer at California-based Bitcoin IRA, said they've had roughly 4,500 people sign up for their retirement accounts since opening in 2016.

Type into Google, "bitcoin IRA" and you'll see a torrent of advertisements. But proceed with caution: these accounts come with heavy fees and risk.

Douglas Boneparth, president and founder of Bone Fide Wealth, said he worries the talk about bitcoin IRAs will make people overestimate how "normal" it is to invest in cryptocurrencies.

"It makes it look more appealing to everyday people," Boneparth said. "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."

How it works
In a standard retirement account, your investments are typically limited to stocks, bonds and money market funds.

"If you walk into Fidelity and say, 'Put bitcoin into my IRA, they'll say, 'Get lost'," Slott said.

So if you want to invest your retirement savings in cryptocurrencies, you'll need what's known as a "self-directed" account, which you can fill with almost anything (prohibited investments include life insurance, collectibles and personal property).

(You can, of course, keep your other retirement accounts and only pursue the self-directed option for your cryptocurrency investments).

There are custodians now — like Kingdom Trust in Murray, Kentucky — that will manage your self-directed account and allow for digital currencies to be among your alternative investments.

Just know it will cost you.

"There's a litany of fees because they know you can't get it anywhere else," Slott said.

Kingdom Trust, for example, charges a monthly $20 account fee as well as a 0.07 percent holding fee, on your account balance. There are additional fees, including an opening and asset purchase charge, as well as a $100 fee to transfer out funds.

By comparison, many traditional IRA accounts come with no annual or opening fee. They do often charge small transaction fees when you buy or sell an investment (Fidelity's fee, for example, is $4.95 ). There can be other fees on your investments, including underwriting and low balance charges, as well as fees the underlying mutual funds assess, that you should check for.

These custodians that offer self-directed accounts typically don't have any fiduciary responsibility to you. It will be up to you to determine what investments are best for you, or to make sure you don't go over IRA contribution limits ($5,500 a year if you're under 50, or $6,500 if you're older).

To make matters more complicated (and expensive), if you want cryptocurrencies among your alternative investments, these custodians often require you to first hire another company to make the purchases of bitcoins and ripples for you.

Bitcoin IRA and BitIRA are some of the firms that provide this service.

You'll typically have to pay a fee of around 15 percent of your investment when you open an account or add new money. Some of them also charge a "liquidity fee" when you shift your money between cryptocurrencies and cash.

Keep in mind: You can't just buy cryptocurrenices and send them to an IRA, said Aaron Pottichen, president of retirement services for CLS Partners in Austin, Texas. A company (like Bitcoin IRA or BitIRA) has to make the purchases for you, to comply with retirement account rules.

That means if you already have cryptocurrencies, "You have to sell it and repurchase it," Pottichen said. Of course, if you bought bitcoin when it was worth $1,000, that won't be desirable.

Here's what you should be mindful of
The IRS considers virtual currencies as property. That means they're eventually taxed at your capital gains rate (either long or short-term).

Investing your IRA in cryptocurrencies could potentially save you on taxes.

Slott said it may make the most sense to open a Roth IRA, as opposed to a traditional one, so that your distributions can qualify as tax free.

"You might as well hit it big and not share it with the government," Slott said.

Not every cryptocurrency IRA company offers Roth accounts though. There are also income limits to qualifying for a Roth. If you make more than between $120,000 and $135,000 as a single, or between $189,000 and $199,00 as a couple, you'll have to stick to a regular IRA.

People should only take risks that won't threaten their retirement, Pottichen said. "Before I would open an IRA to own bitcoin, I'd have to decide: Am I okay with this investment going to zero?"

While the rise of cryptocurrencies might have helped some people to retire sooner, there's no doubt the volatility has aged some others along the way.

That stress is likely to be even more intense when it comes to your retirement savings. When you have your cryptocurrencies on an exchange like Coinbase, you can buy or sell 24/7. But that's not the case when your bitcoin is with a custodian in an IRA.

"I'm subject to market hours," said John Marchesini, co-founder of media company Blockchain Beach. He has more than 10 percent of his retirement savings in cryptocurrencies.

"If there's a big crash overnight, I can't do anything but watch," he said.