Matthew Roed is finding Social Security to be less reassuring compared to the funds he has invested in his BitcoinIRA.
Living in Golden Valley, Minnesota, Roed, a registered nurse claims to have devoted 16,000 hours towards comprehending bitcoin thoroughly. He has deduced that investing in digital currency is pivotal to ensuring a secure retirement. Roed suggests that the most efficient way to achieve this is through a tax-free IRA that is self-directed.
Roed explained that because the U.S. government has classified bitcoin as property and his cryptocurrency is held in an IRA, he was aware that his taxable expenses would decrease significantly as a result of the exponential growth.
The risk taken has been rewarding as per the current rates.
Initially, the individual with an MBA degree who is a father and a husband invested an amount of $30,000 into his BitcoinIRA. At present, he claims that his retirement investment portfolio has increased to $250,000.
Although it has decreased from its highest point of $500,000, Roed still believes in his certainty about bitcoin being the future.
He explained that during that period, he was disregarded by everyone, including his relatives. As a result, he became isolated and utilized his irritation as motivation to become more heavily invested in that industry.
BitcoinIRA
In May 2016, BitcoinIRA was introduced as an investment option that combines the tax benefits of an IRA with the potential for high returns from a risky and rewarding asset class. Unlike traditional IRAs that rely on gold, cash and bonds as funding, BitcoinIRA is secured by bitcoin.
According to chief operating officer Chris Kline, the company’s clientele comprises over 100,000 individual account holders, including customers who have reached the age of 18. However, Kline also mentioned to CNBC that individuals aged 45 and above constitute 75% of their account holders. He stated, “It is no longer exclusively directed towards young people.”
In addition to bitcoin, BitcoinIRA has expanded its offerings to encompass numerous other cryptocurrencies such as ethereum and litecoin.
Campbell Harvey of Duke University advocates for diversification as the appropriate choice.
According to Harvey, it is illogical to possess a portfolio that is solely invested in a single cryptocurrency such as bitcoin. Although bitcoin holds great significance presently, its portion of the overall cryptocurrency market has reduced over the years. As there are numerous other tokens available, Harvey suggests diversification.
In 2017, CNBC featured BitcoinIRA which had completed $6 million worth of transactions for 700 account holders. As of this month, the company has reached a milestone of $1.5 billion in total transactions.
In the past, the number of players in the crypto retirement industry was considerably lower. Nowadays, a plethora of options exist in the market.
According to a new study conducted on financial advisors, there has been a noticeable change towards cryptocurrencies. Out of the 500 financial advisors who participated in the survey, 14% claimed that they either utilize or suggest the use of cryptocurrencies to their clients, as opposed to less than 1% in 2019 and 2020.
Kingdom Trust, an IRA custodian, provides clients with the opportunity to invest in 20 diverse cryptocurrencies. According to CEO Ryan Radloff in an interview with CNBC, Kingdom Trust holds $17 billion for its clients, out of which $2 billion is now invested in cryptocurrency. This represents a significant increase from the $350 million that was invested a year prior.
According to Radloff, there is a significant surge in the number of individuals who are keen on incorporating bitcoin in their retirement savings. Rather than settling for limited investment options, people seek greater flexibility in managing their finances and prefer assets that promise long-term growth potential. They aim to diversify their portfolios with hard-assets that offer them a wider range of investment choices.
IRA vs. Roth IRA vs. 401(k)
Despite the increasing popularity of retirement portfolios supported by cryptocurrency, there are significant constraints that still exist.
Firstly, although there are several options available for investing your retirement savings, such as a 401(k) provided by your employer or a Roth IRA, the majority of these investment vehicles do not permit unconventional assets such as cryptocurrency or gold.
According to Shehan Chandrasekera, a CPA and leader of tax strategy at the crypto tax software company CoinTracker.io, self-directed IRAs are the preferred retirement option for holding cryptocurrency.
This model involves opening an account with a custodian, making investment decisions on your own, and enjoying tax-free income till you retire. Both BitcoinIRA and Kingdom Trust operate under this name.
Tyrone Ross, the CEO of Onramp Invest, stated that when it comes to retirement accounts and bitcoin, IRAs are the primary focus at the moment. Onramp Invest specializes in providing financial advisors with software that allows them to manage their clients’ investments in cryptocurrency.
Ross explained that the reason the self-directed IRA industry is growing rapidly is due to the fact that the IRS views it as property. However, he noted that there are many regulations that need to be navigated in order to introduce it into the 401(k) industry.
ForUsAll, a smaller 401(k) provider, recently made an exception by permitting investors to invest up to 5% of their retirement savings into 50 different cryptocurrencies such as bitcoin. Coinbase will be in charge of safeguarding and supervising these assets.
BitWage and Digital Asset Investment Management are attempting to incorporate cryptocurrency into conventional employee retirement plans.
Chandrasekera notes that currently, the majority of 401(k) plans do not include bitcoin services, indicating that it will take some time before bitcoin becomes prevalent in retirement platforms.
Fidelity and Charles Schwab inform their clients that they are unable to facilitate the purchase or sale of cryptocurrencies for retail brokerage customers. However, clients may potentially gain exposure to the bitcoin market through crypto-related companies trading on public markets.
Volatility risk versus tax savings
After completing a 14-hour night shift, Roed talked with CNBC. During the hours after work, when Roed works as a rehabilitation staff nurse, he devotes the most time to investigating methods to invest in cryptocurrencies.
One of the reasons why he opted for BitcoinIRA is due to the firm’s staking initiative. Roed lends his bitcoin to others and, in exchange, receives an annual percentage rate (APR) commensurate with the risk. He stated that the rate is around 2% per annum.
It assists in balancing out the yearly account charge of $240, on top of the typical transaction fees of 1% for selling and 5.5% for purchasing.
According to Kline, customers have the potential to receive a yearly percentage yield of up to 6% on both cash and cryptocurrency, thus offsetting the costs.
One more crucial factor to consider is the unpredictability of bitcoin.
The current value of the world’s favorite cryptocurrency is roughly fifty percent of its April worth.
Harvey clarified that, as an example, the stock market does not exhibit such volatility in his perspective.
He stated that it would be unrealistic to assume that bitcoin will continue to rise indefinitely. There will be a point at which it will be restricted, and it is critical for individuals to ponder on this thoroughly.
In addition to the risk of market fluctuations, the Securities and Exchange Commission has cautioned against potential fraudulent activity associated with self-directed IRAs that invest in cryptocurrencies.
Kline still holds a positive outlook. He presented a scenario to CNBC regarding a customer who procured approximately $1.5 million in bitcoin during April 2020 when the digital currency was priced at around $7,335. As of today, the customer’s investment has exceeded $6 million in value.
According to Kline, the tax benefit is the main reason why BitcoinIRA is a great choice for individuals interested in trading cryptocurrencies.
In case a taxpayer with an ordinary income sold his bitcoin today, there would be no tax obligation for the cryptocurrency stored in his BitcoinIRA; whereas, if it was kept in a Coinbase account, the individual would have to pay a short-term capital gains tax of 22% or 15% for a long-term investment.
Kline stated that there is a strong justification based on quantifiable reasoning for including an asset such as Bitcoin in an IRA context.
Pros of Bitcoin IRAs
Including a range of exclusive advantages, Bitcoin IRAs offer a multitude of distinctive benefits.
- Portfolio diversification: As you already know, when it comes to investing, you shouldn’t put all your eggs in 1 basket. Investors may find that including Bitcoin holdings may add the much-needed diversification to their retirement portfolios.
Bitcoin can potentially safeguard your retirement account during a major market decline as it operates autonomously, without being affected by individual economies, currencies, and markets.
- Protection of your retirement savings from inflation: Bitcoin has a hard limit (fixed total supply) on the number of tokens that are available, which makes it immune to the effects of artificial inflation.
Adaptive scaling, which refers to the increase in difficulty in obtaining cryptocurrencies as their supply grows, makes them harder to acquire. A Bitcoin IRA, on the other hand, allows you to safeguard your retirement savings from inflation, unlike the readily printed US dollar.
- No influence of central bank policies: Bitcoin and other cryptocurrencies are decentralized — they don’t rely on the performance of the central banking system. As a result, cryptocurrencies have no controlling entity that the money flows through, which implies that this part of your retirement funds won’t be subject to manipulation. Banks and governments can’t interfere.
- Tax savings: All thanks to the IRS Notice 2014-21, Bitcoin is treated as personal property. As a result, any gains you accrue may be retained tax-free until you take a distribution.
Purchasing Bitcoin for your retirement account and holding onto it until selling it later within the IRA can be advantageous as well. This way, you have the chance to reinvest the funds in an asset that is eligible to be kept in an IRA and receive benefits with deferred taxes. Such assets may comprise bonds, mutual funds, stocks, precious metals, ETFs, some types of real estate, and so on.
- Tremendous growth: If Bitcoin’s current run is something to go by, a Bitcoin IRA can give you unparalleled growth. Cryptos are breaking into the mainstream, and payment giants PayPal recently added native support for digital currencies.
Over the past 5 years, Bitcoin has yielded a return of more than 2,000%, whereas the S&P 500 Index has a typical annual return of 8%. Nonetheless, it is important to note that previous results do not ensure future returns.
- Easy management: Managing cryptocurrencies through a wallet and exchange can be a pain, particularly if you’re not technically inclined. Luckily, a Bitcoin IRA can do all the heavy lifting for you. Just fund your account, log in and trade.
Cons of Bitcoin IRAs
- Volatility: Bitcoin has shown erratic volatility at times, and it’s the main reason many people consider this asset class risky. If you have a low risk tolerance, volatility may be a huge drawback. Seeing your retirement funds fall by more than 20% in a day can be too much to take. That doesn’t mean that Bitcoin can’t be a great buy for your IRA, just that it likely shouldn’t make up all of your portfolio.
- Fees: Arguably the most certain drawback of investing in Bitcoin IRAs is the fees involved. Setting up a self-directed IRA could rise to the tune of several thousand dollars — though this varies between providers. Besides the account setup fees, you might also have to pay recurring maintenance and custody fees.
Even if someone else does the trading on your behalf, you will still have to pay fees that exceed 1% per trade. Moreover, if you decide to prematurely close your SDIRA and withdraw your funds, you will face additional fees. Overall, the total fees and taxes could cut into the benefits and profits gained from the Bitcoin IRA.
Best Crypto IRA Platforms
If you’re interested in purchasing Bitcoin through a crypto IRA, these are the top recommendations within its category.
Best for Low Fees: iTrustCapital
iTrustCapital is a popular IRA trading platform for digital assets that offers significantly lower costs compared to other IRA providers, up to 90% lower. Its pricing is clear and includes a 1% fee for crypto trades, $50 per ounce for gold over spot, and $2.50 per ounce for silver over spot. Additionally, the platform levies a monthly account fee of $29.95, which covers services like:
- Setting up a new IRA
- All the necessary tax/IRS reporting
- Unlimited storage with institutional custody partners
- Facilitating contribution, rollover or transfer to fund your IRA
- The iTrustCapital platform support and maintenance
Best Full-Service Platform: Bitcoin IRA
Bitcoin IRA is the first cryptocurrency IRA in the world that provides a complete investment solution. The setup process for your account is hassle-free, as the platform’s experts assist with account setup and transferring your current 401(k), traditional IRA, or Roth IRA. With your IRA account created, you can begin live trading around-the-clock in just a few days.
Bitcoin IRA offers top-notch protection and storage for your digital assets. Initially, your assets are kept offline using BitGo technology, which is supported by BitGo Inc., the leading on-chain Bitcoin transaction processor. Additionally, all assets receiving custody are insured for up to $100 million by BitGo.
Best for Diversifying Your Retirement Funds: My Digital Money
With its partnership with My Equity Trust, My Digital Money, which is located in the United States, offers self-directed crypto IRA products. By paying a $50 setup fee, you can use your IRA funds to invest and enjoy tax-advantaged or tax-free earnings that will enhance your retirement portfolio. Despite the service being offered at a significantly affordable fee.
Various types of IRA accounts are available for you to open, such as:
- Simple IRA
- Traditional IRA
- Roth IRA
- Simplified Employee Pension Plan (SEP) IRA
Best for Security: BitIRA
BitIRA offers a secure and hassle-free solution to establish an IRS-compliant digital IRA. Utilizing their experience with major retirement account custodians such as Fidelity and Merrill Lynch, BitIRA ensures a prompt and effective transfer of digital assets to your retirement account.
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