What is a cryptocurrency IRA? That is the main subject we are going to cover in this short article. So, in 7 minutes from now you will know exactly that and also some other important things surrounding this subject. Ok, with that being said, let´s get right into it and highligt important points!
P.S. See my top-5 list of cryptocurrency IRA companies on this page
You cannot turn on the television or check out the latest happenings on social media without hearing about cryptocurrency news. The visibility that cryptocurrency is receiving has lots of the savviest investors wondering how they can incorporate crypto assets not only in their brokerage portfolios but also into their retirement portfolios. Cryptocurrency IRAs are the answer and they’re easier to open and fund than ever before.
What is a cryptocurrency IRA?
Cryptocurrency IRAs are self-directed IRAs that hold investments in digital currencies instead of cash, precious metals, stocks, or bonds. IRS rules do not allow IRAs to use cryptocurrencies. However, the tax code does not specify in its own investment system what people can invest in through self-directed plan. The rules only stated prohibited investments and transactions. Cryptocurrency brokers and investors interpret IRA cryptocurrencies as legally fixed assets because they are not prohibited by the IRS.
How to Invest in Cryptocurrency IRAs:
Any individual wanting to participate in a cryptocurrency IRA needs only to open a self-directed IRA. Self-directed IRAs allow the account owner to invest in a much wider variety of assets than an IRA without the self-directed designator. Self-directed IRAs can be both Traditional or Roth and the difference between the two lies, simply in where the money is taxed. Traditional IRAs are tax-advantaged on the front end and any money put in the account will reduce taxable income. Roth IRA funds go in after taxes and are considered tax-advantaged when they are withdrawn at retirement. Cryptocurrency IRAs are no different and anyone considering opening one needs to decide whether they want the tax advantages now or in the future.
Business owners are also able to participate in the cryptocurrency inside their retirement accounts as there are SIMPLE cryptocurrency IRAs and SEP cryptocurrency IRAs. Both of these vehicles allow business owners to invest in the same variety of assets as a self-directed IRA.
Where to purchase Cryptocurrency IRAs
When cryptocurrencies first entered the market, they were often purchased directly from cryptocurrency companies, but this type of trading is no longer common due to currency-related calculations. Currently, the most common way to buy cryptocurrencies is through crypto exchanges.
A crypto exchange is an online marketplace that only deals in the buying and selling of cryptocurrencies from several companies are the only investment offered. A crypto broker places a matching order between buyers and sellers of crypto coins. Because these exchanges are private and unregulated, prices can vary significantly between crypto exchanges and brokers. Some IRA crypto brokers use private p2p cryptocurrency systems and require their clients to use them, while others trade between multiple decentralized exchanges.
**Want to simplify the process? Then see this page
Best digital currencies to invest in
Bitcoin is the largest and most well-known cryptocurrency in use today. In 2008, Satoshi Nakamoto introduced the original code and concept. In 2009 he launched the software digitally, and since then people have been working on the system and helping to grow it into a global phenomenon based on decentralized server systems. Bitcoin is currently the most valuable cryptocurrency.
Litecoin is a cryptocurrency that is almost identical to Bitcoin in terms of transaction and coding, but it is faster and cheaper. Like Bitcoin, Litecoin has certain limits on the amount of Litecoin it can issue, but that number is higher than Bitcoin by 84 million. The difference between bitcoin and Litecoin code and the process makes it 4x faster than Bitcoin. It also requires lower transaction fees.
Although Ethereum is decentralized, it has more corporate origins than other cryptocurrencies. Developed in 2014 by the Ethereum Foundation in Switzerland, Ethereum is more than just a cryptocurrency. The software equally serves as a platform for transferring something of value, such as property or content. Ethereum offers a software wallet instead of depending solely on third-party programmers for security and storage. This exceptional and unique capacity of ethereum compared to other cryptocurrencies has made enthusiasts to believe that it will surpass Bitcoin and become the novel standard.
Ripple is a corporate cryptocurrency unlike other cryptocurrencies. Ripple has offices around the world and sells to banks and other financial companies as a secure digital currency at low fees. Unlike Bitcoin and Litecoin, Ripple immediately launched a 100 billion token currency market. Ripple Labs owns 60% of the tokens and has no mining system. Ripple price has recently fallen.
Those 4 are the main ones but personally I would highly recommend that add a few more into the mix such as Chainlink, Stellar Lumens, ZCash, Dash and Ethereum Classic just to name a few.
Why Cryptocurrency IRAs:
Self-directed IRAs offer a wide variety of assets, some of which are more niche, but they still have access to mutual funds, stocks, and bonds like regular IRAs. Cryptocurrency IRAs allow for owners to participate in a much wider range of asset classes, which give them a more diversified portfolio. One of the pillars of investing is diversification because having assets that respond differently to the same event is what insulates portfolios from crashing just because something in their portfolio does. Cryptocurrency IRAs allow investors to put at least a portion of their retirement savings into an asset that is not directly impacted by the stock market ebb and flow.
What separates cryptocurrency from fiat currency is that a majority of cryptocurrencies have a cap on the number of coins released into the market which prevents inflation and keeps the supply and demand balance in check. Because FIAT currency is no longer backed by a tangible asset, inflation is a bit of a runaway train especially for governments desperate to keep their economies afloat. Some inflation is good, but uncapped inflation is damaging to today’s dollars and future spending power. Cryptocurrency IRAs with their inflation protection is ensuring that there are funds in retirement accounts that are impervious to inflation.
Cryptocurrency IRAs are a great way to invest in cryptocurrency without worrying about tax implications on capital gains. Cryptocurrency is expected to continue to grow and gain popularity. As supply rises, so will demand. Even though cryptocurrency is not currently government regulated, cryptocurrency is still taxed. Cryptocurrency IRAs offer crypto investors a way of investing in cryptocurrency without having immediate tax implications on capital gains.
Some things to consider:
For the dinosaurs who still haven´t realised what Bitcoin and other cryptocurrencies are about to become, and in many ways already accomplished hopefully the below images will be an aha moment:
The token native to the Ethereum blockchain, Ether (ETH),currently trades around $230,and the market capitalization of all ether around $25 billion, making it the second most valuable blockchain behind Bitcoin.
The market capitalization of the flagship crypto asset, Bitoin, now beats that of more than 50% of all banks in the United States. It shows 1,500 US banks boast a total market capitalization of $1.9 trillion, while Bitcoin alone is valued at $1.05 trillion.
The retirement of hundreds of millions of corporate and government employees around the world depends on these pension funds ability to pay the individual a set amount of money post-retirement. Unfortunatly, many pension funds are facing a significant crisis, it does not look like they will be able to pay their future obligations.
P.S. See my #1 recommended crypto retirement solutions on this page
Are Cryptocurrency IRAs secure:
Cryptocurrency assets whether in a crypto brokerage account or a retirement account are still digital assets. The question for many investors with only digital assets, not tangible, is are the coins in my cryptocurrency IRA safe. Because of these digital assets, there is an additional element to making sure that your money will be there for you when you need it at retirement.
Self-directed IRA participants must find a custodian for their crypto assets. Most firms where they allow opening self-directed IRAs will have a list of custodians that they work with, but the responsibility to choose the right custodian falls on the investor. While there have been hacks on several cryptocurrency exchanges, choosing a custodian for your cryptocurrency IRA with a record of safety and internal insurance is imperative. There are no government insurances for cryptocurrencies like there are through the FDIC and SIPC. If cryptocurrency coins are lost or mismanaged, there is no recoupment unless the exchange or custodian is privately insured. Custodians will also occasionally use cold storage as a method of securing cryptocurrency for the investors.
What are the benefits of cryptocurrency IRAs
Similar to other standard retirement accounts, cryptocurrency IRAs come with some benefits and these include the following:
1. Tax Benefits
Standard cryptocurrency IRAs are tax-deferred. If you’re operating a Roth cryptocurrency IRA account, any growth recorded is tax-free.
Transactions are protected by multiple security features and verified by the blockchain network’s peer-to-peer protocol.
As opposed to the standard retirement savings account, you have additional an investment instead of only stocks and mutual funds.
4. Minimizes Inflation
The adaptive scaling mode of crypto coins doesn’t give room for artificial inflation of supply.
5. Eliminate involvement of banks
Large banking institutions don’t get involved in digital investments.
How to Invest in a Bitcoin IRA or Cryptocurrency IRA
1. Select a trading platform or brokerage firm
Choose a cryptocurrency broker to facilitate the transaction.
2. Choose an overseer (account manager)
Choose an IRA account manager (unless your broker/agent asks you to use one of their designated custodians) and open a self-managed IRA account.
3. Place your order
You place an order through a broker/broker, then perform the trade and reconcile your IRA wallet deposit with the account manager.
Pros and Cons of Cryptocurrency IRAs
People may find that including cryptocurrencies can diversify into an annuity portfolio. This can help protect these retirement accounts in the event of a serious market downturn or other problematic activity in the future.
Investors who tend to add crypto holdings to their IRAs rather than diversify are more likely to believe that cryptocurrencies will continue to grow in popularity and availability in the future. The long-term outlook makes IRAs an outstanding investment fund with significant potential for decades to come. Of course, opponents of crypto can argue that Bitcoin and other digital tokens are unproven at best due to their volatility and instability.
Those wishing to invest in a specific crypto-related retirement account can avoid high taxes on capital gains. However, as you will see below, there are other fees to consider.
Extreme volatility in recent years has made it difficult for many to sell as an annuity investment. Leading cryptocurrencies are constantly experiencing significant price fluctuations. The price has been declining since peaking above $16,000 per bitcoin in December 2017. Bitcoin improved slightly in 2019, but its price as of June 2020 is still close to half its all-time high.
Worse, pessimists are likely to argue that the hype about Bitcoin and digital currencies as a revolutionary new form of currency has so far been exaggerated. Although it has been 10 years since its inception, Bitcoin has not yet replaced any fiat currency, and most people around the world know that it is still difficult to conduct day-to-day business with digital currency.
Another major downside of including bitcoins in an IRA is the fees. Bitcoin trading through an IRA is different from regular stock trading or currency swap at exchanges without custodian. The potential tax benefits of trading bitcoin through independent IRAs have their own problems. The most important of these are additional costs and risks. Since companies that offer independent IRA services are not subject to broker management rules, investors will be embarrassed if they do not assess the risk in the cryptocurrency market.
Bitcoin fees take many forms during the investment process, from initial deposit fees, transaction fees, and annual maintenance fees. For example, setting up a $50,000 self-directed IRA account for trading can cost up to $6,000 during initial setup, depending on the seller.
Finally, each cryptocurrency transaction requires its own set of fees from the service provider’s trading partners and storage. A typical provider may charge a 3.5% per transaction for each purchase, 1% for each sale, or a flat fee. In addition, early departures may lead to taxation of capital gains on individuals. Together, these fees can cancel out the tax benefits provided by an IRA.
Best cryptocurrency IRA Companies
A standard independent retirement account (IRA) is a great way to secure future financial stability. However, as global events continue to increase volatility in global markets, some investors want to diversify their IRAs with alternative assets, including bitcoin and other cryptocurrencies.
Since Bitcoin is a digital asset rather than a physical asset, a cryptocurrency IRA requires professional management, increased security for sensitive data, and deeper experience in cryptocurrency trading. We have provided below best crypto IRA companies based on knowledge, security, experience, mission and more.
** You can see the top-5 list of the best cryptocurrency companies on this page
You made a good decision reading this article and you are a smart person, so I am absolutely sure that you will find the right company to do business with, and that suits your personal needs the best!
My absolute best recommended crypto IRA company got both insurance of your crypto aswell as cold (offline) storage, and I would not recommend any other company over it. They also make the process simple to both perform and understand, so even a non digital generation person like me can easily get started filling my retirement portfolio with a variety of different coins.
See my top-5 list of cryptocurrency IRA companies on this page
I hope you found this short post on what a cryptocurrency IRA is to be helpful and that you now have a better understanding in the subject. Please share your own experience in the comment section below as it can help others! Also, if you got any questions about this I would be more than happy to answer them below!
I wish you success!
Michael, founder of Gold Retired
Dear Duke, this is an excellent overview of matters relating to cryptocurrencies. I am old school and still uncertain to invest given that there have been so many ransomware attacks on computer systems from major and minor companies / governments throughout the world. I will need time to work through this as there are many dots to connect.
I did not know what IRA was so I Googled it, does it mean ‘ Individual Retirement Account’, I did a search and could not find it in your blog.
Great blog, really enjoyed, it many thanks! Ted
First of all, thank you for your comment!
My #1 recommended companies insure your investment in the case of a disaster or hacker attack or something of that nature.
Yes exactly, this time Google was your friend and showed you the correct meaning of IRA!
Thank you again!