Bitcoin IRA – everything to know about retiring with crypto
Cryptocurrency is truly changing the world because now you can get a bitcoin IRA! They let you invest in alternative assets to build your retirement savings. If you’ve been following these digital currencies, you would know how quickly they gain value. This means a bitcoin IRA has a chance of yielding huge gains in a short time.
You should be aware of the potential problems you may get from it. You will have to accept the risks of investing in cryptocurrencies. Also, you must be ready to pay for the fees included and expect the rules to be a bit more complicated. If you’re up for that, then you might want to consider a bitcoin IRA for your retirement plan!
Before you do, it’s important to learn more about what bitcoin IRAs are. Then, we will explore the numerous benefits and risks you should expect when you get one. Later, you’ll see that this type of retirement plan isn’t just limited to bitcoin. If this IRA isn’t for you, we’ll show you other options for your retirement.
What are bitcoin IRAs?
IRA stands for “individual retirement accounts”, and they help you build a fund for your later years. You may choose from two types, a traditional IRA or a Roth IRA.
A bitcoin IRA is just another way of referring to a self-directed IRA. It’s a type of retirement account that lets you include alternative asset classes not found in typical plans like:
- Real estate
- Precious metals such as gold and silver
- Digital assets, including bitcoins
- Water rights
This means you could also call it a crypto IRA. To make things simple, we’ll just keep calling this type of account a Bitcoin IRA. After all, more people are familiar with bitcoin than other cryptos.
What’s more, there’s an investment firm with the same name. Regardless, just remember that your retirement portfolio may include other cryptos.
How does it work?
You could choose either a traditional or Roth option for your Bitcoin IRA. It will have the same annual contribution limits of $6,000 or $7,000 if you’re 50 years old or above in 2021.
If you’re working from home or running a small business, you could go for solo 401(k)s and SEP and Simple IRAs. You may also use money from a normal IRA to a self-directed one.
As the name suggests, you will have to be more hands-on with this, unlike traditional retirement options. You will have to consider these parts of a bitcoin IRA:
- Custodian – This is the company that will hold and secure your IRA. Also, they are in charge of making sure your account follows the law.
- Exchange – Similar to the stock market, this is where you’ll be buying your bitcoins. The most well-known cryptocurrency exchanges are Binance and Coinbase.
- Storage method – Most bitcoin IRA firms provide ways of storing your coins after you’ve bought them.
Your account will have some of these parts or a mix, depending on your IRA firm. Look at several options before you open an account.
Read More: The Best Roth IRAs Right Now
Why should I invest in a Bitcoin IRA?
It’s a neat option, but you might be wondering why you should choose this for your retirement plan. Here are the reasons why people get this type of retirement plan:
- High returns – As we said, cryptos can quickly increase in value. For example, Dogecoin (DOGE) went up by 29% last week!
- Diversification – Cryptocurrency prices swing wildly, but at least they’re not affected by stocks and bonds. Most of these assets have not been doing well during the COVID pandemic. This is why some people are using it to protect against inflation nowadays.
- Tax benefits – You owe capital gains taxes when you sell cryptos. A bitcoin IRA could make things easier, though. As long as they are inside, you won’t have to pay this tax. As a result, your fund may grow larger.
What are its potential issues?
Bitcoin IRAs have their downsides too, but the point of investing is looking for the ones that fit your needs. Look at the following problems with this IRA to see if it’s right for you:
- Volatile prices – Your IRA takes on the benefits and risks of the assets in it. Putting in cryptos means you will have to manage their wild price movements. Based on crypto trends, we may see the price of bitcoin skyrocket like never before. Still, it might crash just before your retirement, providing you with fewer funds.
- Fees – Self-directed IRAs often charge more fees, such as a transaction fee or a setup fee. Make sure you know how much you will have to pay before getting one.
- Exchange limits – Your bitcoin IRA might require you only to use a certain crypto exchange. For example, you can’t use Binance if it only allows Coinbase.
Alternative investments for retirement
If you don’t want a bitcoin IRA, you could always choose a Roth IRA or a traditional IRA instead. Here are the good qualities of Roth IRAs:
- Tax-free income – A Roth IRA lets you receive funds untouched by taxes. This means you may get more money in your later years.
- Withdraw at any time – If something happens, you can take out the money, but you will face a few penalties. What’s more, you don’t have to withdraw the money at a certain age. If you want, you could pass on that IRA to your heirs.
- More investment options – You could put various assets like stocks, bonds, ETFs, and REITs. However, you can’t invest in other ones like coins or art.
However, your contributions won’t lower taxes. You will have to meet a certain income limit to apply. On the other hand, traditional IRAs provide this type of tax break.
What’s more, you won’t have to pay taxes on profits. On the flip side, you will have to pay when you take the funds out. Also, you will have to start doing this once you turn 70 ½.
Expect risks when you get a bitcoin IRA or other options. As we said, the whole point is to find the right one, not the perfect one, and that’s why you must plan this carefully.
This article just informs readers of this type of investment. You must choose yours based on your goals. Learn all you can before opening an account.
More importantly, only use the money that you are willing to lose. If you need extra cash, you could try various ways of making money online.