Bitcoin IRA Basics

Bitcoin IRA Basics
(Last Updated On: August 17, 2021)

The chance that you haven’t heard of Bitcoin is almost non-existent unless you’ve been living in the middle of nowhere for the last 10 years or so. The technology behind these coins may not be the clearest to you, but you see that cryptocurrencies are a way to the future. Why not use them to your advantage?

The cryptocurrency trade is as old as the first mined coin. Today, it’s no longer a strange thing. A lot of people make for a living or some extra cash in this way. But, as seen on this link, the IRS has certain limitations in terms of trade, profit, and taxation of these assets. Moreover, it’s impossible to invest directly in cryptocurrencies with your 401 (k) or a traditional IRA.

According to the IRS, cryptocurrencies are alternative assets and carry some risk to investors. Since traditional retirement plans mainly place your funds in low-risk investments, it’s clear that these assets can’t be found in your portfolio. But you can do that the other way.

Find a Company to Invest with

The Bitcoin IRA is a great way to legally circumvent these restrictions. You could have one of these (along with any other retirement plan) if you are willing to take a bit of risk to increase your funds. Of course, with this retirement account, there are certain conditions that you must meet to enjoy its benefits.

The first step toward implementing cryptocurrencies into your portfolio is to set a Bitcoin IRA. You have to do that through IRA companies specialized in digital assets. As there are no many of these, you can do detailed research on potential partners. Go with companies with a good reputation, good reviews, and proven track history.

A chosen IRA company handles your account, where you invest and store crypto assets. These firms offer various services, some of which include holding your IRA, storage for your Bitcoins, custodial services and support, etc.

IRA Companies’ Fees

When you invest through a broker, you have several costs, most often one-time. You will pay them annually or quarterly. These are the costs of opening and maintaining an account, storing your assets, etc. There are also costs for each individual transaction you make through these companies.

For the fee you pay them, IRA companies maintain your account and act on your behalf, ensuring that all transactions are transparent and by the law. They also offer intermediary services, which will make the sale or purchase of digital assets quicker. Some brokers charge extra for these services, while others provide them for free.

Funding Your IRA

Many Bitcoin IRA companies allow you to invest a portion of your retirement savings. You use them to fund your self-directed IRA so you can buy crypto in the future. Do that via bank transfer, contribution, or rollover from any existing retirement plans you have. Keep in mind that some of these transactions will take up to five workdays, so be patient.

Check the following page for more detailed explanation of 401(k) to self-directed IRA rollover:

Process of Investing in Bitcoin

Once you receive notification that your account has been funded, you’re free to start trading. A Bitcoin IRA company of your choice will help you set up a single-member LLC, so you can perform on any crypto exchange. That’s a much easier and simpler way than investing directly via your IRA.

Choose the platform which can title the trading account in the LLC’s name. In other words, you have to open an account there in your IRA’s name. Your trustee is an official owner while you’re in charge of making decisions. When you’re all set, you can start buying and trading Bitcoin or any crypto you want.

Benefits of Bitcoin IRA

Most people who hear that the value of Bitcoin has been on a steep climb for the past few months have limited knowledge of this cryptocurrency. Sure, volatility is the greatest enemy of this alternative asset. But the chance that this coin is worth nothing is almost non-existent.

The first reason why Bitcoin should be in your portfolio is that all the other coins are somehow related to it. Next, this crypto is based on blockchain technology. This method of decentralization is considered the future of all financial transactions.

The longer you hold Bitcoin, the more tax benefits you will enjoy. The profit you earn will probably overcome the tax you’ll have to pay once you withdraw your funds. After retiring, you will have to pay taxes is when you take the money out of your account and use it for your personal use. But, if you want to sell your Bitcoin for a lump sum, you can do so without paying taxes.

Storing Bitcoin

bitcoin cold wallet

When it comes to investing in Bitcoin, keep in mind that this coin is not like traditional currencies. Instead of being backed by anything tangible, it’s stored on a computer or any transferable hardware. It’s called a cold wallet, and it has to be held within your custodian. You can work with bitcoin site or any other non-bank organization that provides this service. Don’t keep cryptos at home, as an IRS may classify them as a short-term gain and obliges you to pay high taxes and even penalties.

There are many risks associated with this type of investment, but also a lot of benefits. By taking the time to learn about this exciting new technology, you can invest safely in something that will most likely bring you profits in the future.

About the author

    Whale Sumo

    Hwang is a self-proclaimed nerd who loves helping people understand complex concepts. He has a passion for crypto and online privacy and enjoys teaching others about the benefits of both. Hwang is an advocate for individual freedom and believes that knowledge is power. When he's not busy sharing his knowledge with the world, Hwang can be found running full marathons or playing video games.