By Josiah Wilmoth
Editor’s Note: As you get read for the the new year, remember that may include cryptocurrency in your IRA.
Bitcoin and other crypto assets have yielded phenomenal returns over the past year, causing many investors to consider adding them to their portfolios. Some investors like to buy and sell cryptocurrencies on a regular basis to take advantage of shifts in the market. Others, however, intend to hold these assets for the long-term.
Many investors are surprised to learn that they can hold crypto assets in self-directed IRAs — retirement accounts that give investors broad authority to invest their funds as they please while retaining all the tax advantages of conventional IRAs.
Below, Trevor Gerszt, CEO of CoinIRA, explains three reasons investors choose to invest in bitcoin through a cryptocurrency IRA.
3 Reasons to Use a Cryptocurrency IRA to Invest in Bitcoin
1. Diversify Your Retirement Portfolio
The first benefit of investing in bitcoin through a cryptocurrency IRA is greater portfolio diversification. Alternative investments form an important component of any portfolio, and billionaire investor Mark Cuban says that “true adventurers” should allocate up to 10% of their portfolio to crypto assets such as bitcoin, ethereum, and ICO tokens. As an added benefit, Gerszt says that you have the option to roll funds from your current IRA into your self-directed IRA and use them to purchase bitcoin and other crypto assets.
2. Tax Advantages
Another of the primary advantages of investing in bitcoin and other crypto assets through a self-directed IRA is that they receive the same tax advantages as conventional IRAs. Consequently, using this investment vehicle will allow investors to minimize their tax liability and maximize the profitability of their investments.
“[C]ryptocurrency IRAs can be funded with pre-tax dollars or existing retirement assets,” he explains, “That makes them a very popular option for investors looking to take advantage of the asset appreciation of cryptocurrencies while still benefiting from the advantages of traditional retirement accounts.”
Investors can structure the account as a traditional IRA so that they can fund it with pre-tax dollars, or they can structure it as a Roth to ensure tax-free growth. Since most investors purchase cryptocurrencies with after-tax dollars anyway, this latter option is particularly attractive for people who have a long investment horizon.
Finally, investing in bitcoin through a cryptocurrency IRA ensures that your cryptocurrency assets remain secure. Assets in a self-directed IRA must be held by a custodian, who will store them in a secure wallet and then help you exchange your cryptocurrency holdings for dollars when you are ready to begin making withdrawals:
“Cryptocurrency IRAs offer investors a secure wallet with multiple layers of protection that protect their digital currency assets from hackers,” Gerszt explains.
Additionally, the custodian will transfer the assets to your heirs when you pass away, ensuring that your loved ones can access them even if they are unfamiliar with how to use a cryptocurrency wallet.
Cryptocurrency IRAs are not the right choice for all investors, particularly those who desire short-term profits. However, investors with long investment horizons may find that these retirement accounts present them with a convenient way to secure their crypto nest eggs.
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Featured Image from Unsplash/Jay Castor
Article originally published on October 28, 2017