Technology has revolutionized the way in which investors can gain access to Bitcoin IRAs. In the recent years, Bitcoin has risen in popularity and has been added to the list of assets that investors can rely on to create retirement income. Owing to the fact that cryptocurrencies came to life right after the Great Recession, most investors have either resorted to relying on them, or are currently considering if they can take a leap into this new field of investments.
Bitcoin IRAs are considered as alternative assets to what is currently offered under the traditional asset investment system. This is the reason most younger investors are likely to consider investing in Bitcoin more than those who are acquainted with traditional assets. The big question to address, however, is “ “What are the pros and cons of Bitcoin IRAs” By addressing this question we shall have determined whether it is a prudent move to own this digital currency or not.
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Despite there being references to the term Bitcoin IRA in very many online sources, there is no single IRS backed crypto account that is only set aside to cryptocurrencies. The truth is that Individual Retirement Accounts have the potential to hold bitcoin as well as other cryptocurrencies, which are popularly known as altcoins.
In 2014, the IRS made it clear that it would be viewing cryptos in the same manner that it views traditional investment assets such as stocks, for the purpose of taxation. The decision by the IRS to treat cryptocurrencies as property led to the need for the designation of custodians to oversee the Bitcoin IRA transactions, in a bid to comply with the set regulations.
Investing in Bitcoin through an IRA requires that either you pick a company that offers such services, or that you arrange with your current custodian to include the new assets. Most IRAs usually focus on a limited scope of assets such as stocks, bonds, mutual funds, as well as Certificates of Deposit (CDs).
In order to accommodate investors who want to invest in alternative assets such as Bitcoin, IRAs usually offer Self-Directed IRAs (SD-IRA). SDIRAs usually present an investor with the opportunity to control their portfolio by making unanimous decisions about which asset receives what amount of money. Investors who want to invest in assets such as notes, private placements, real estate projects, various precious metals, as well as tax lien certificates also use SDIRAs.
With an SDIRA, you can purchase and hold cryptocurrencies, as you wait for their value to increase.
What are the advantages of owning cryptocurrencies in a Bitcoin IRA?
Advantages of Bitcoin IRAs
- Diversification – Having various asset classes within your IRAs offers the benefits of risk reduction or diversification as it is commonly known. Owning traditional assets, such as stocks and bonds can be catastrophic when the economy experiences a downturn such as the one that happened in 2008. Those who had only invested in traditional assets booked very huge losses. Some investors are still struggling to get on their feet. With cryptos in one’s IRA, one can cushion themselves from making total losses, since alternative assets mostly behave differently from paper assets during an economic crisis.
- Tax advantages – By investing in cryptos through your SDIRA, you usually unlock the benefits of having a tax-deferred account. Investors can pair up their Self-Directed IRAs with a reliable cryptocurrency that acts as a special account for all digital currencies. This leads to a significant reduction in taxes.
- Income-generation potential – Financial experts are still of the idea that Bitcoin will significantly increase in value due to its scarcity (and absence of inflation). So far, those who have invested in Bitcoin have already reaped significant results in the form of very huge returns. Barely any asset can match up to the potential that is borne by Bitcoin.
The disadvantages of a Bitcoin IRA
Despite having the potential to give very huge returns, cryptos are very volatile. Creating a Bitcoin IRA may be a perfect opportunity for you to diversify your investment portfolio, but may end up presenting troubling volatility. The prices of cryptos can rise and fall sharply within a very short period, and this can have a negative impact on your investment. When held for the long term, however, cryptos have proven to bear impressive returns.
- High fees
Bitcoin IRAs come with higher risks, thus attract higher fees. Companies that offer Bitcoin storage services have to invest in high-quality cold-storage facilities that ensure that your cryptos are safe. They also have to part with huge amounts of money to insure the very valuable Bitcoins IRAs. This is the reason these IRAs attract higher fees. You will, however, find out that the profits you make in the long-term investment horizon will make the fees look like peanuts.
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A Bitcoin IRA comes with upsides and downsides that you should weigh carefully before finally deciding whether you will open one. If you open your crypto IRA with a reliable company such as Regal Assets, through Regal Wallet, then you should invest not more than 10% of your funds in these cryptos. This will ensure that any unprecedented losses will not damage your investment portfolio totally. On the overall, having a Bitcoin IRA is a sound investment strategy that offers you the chance to receive the most incredible returns.
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I hope that you enjoyed this article about Bitcoin IRAs. Feel free to express your thoughts in the comments section, and to also drop a question if you have any.
I wish you success!
Eric, investor, entrepreneur and team member of Gold Retired.
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