As the best Bitcoin IRA company, we wrote this guide to help you better understand this exciting new way of investing in alternative investments. You no longer need to stick with dinosaur IRA service providers or boring mutual funds, virtual currency retirement accounts have arrived!
What is a Bitcoin IRA?
Today’s topic is about Crypto IRA’s, or often called Bitcoin IRAs and sometimes even Crypto Retirement Accounts.
What is an Individual Retirement Account (IRA)?
The term IRA stands for Individual Retirement Account.
These are investment vehicles that started in the 1970’s to give incentives to Americans to save more.
IRA’s provide significant tax incentives for citizens who plan to invest for the long term.
Today investors hold over $9 Trillion Dollars in IRAs.
What are the tax advantages of a Bitcoin IRA?
The tax advantages of an IRA are quite simple, but first we need to break down the two different types.
The first type of IRA is the Traditional IRA. It provides a tax write off each time a “IRA Contribution” is made. You can make an unlimited amount of trades in this account without any taxable events.
Second, is Roth IRA, this requires “IRA Contributions” made to be from earned income. Similar to a Traditional IRA, you can make unlimited trades in the account. The difference is that all the gains are tax-free in retirement. Roth IRA’s are one of the most powerful investment vehicles in the world.
The differences between a Traditional IRA and a Roth IRA come down to simply – “Do I want to pay taxes now or later?”
Where does IRA turn into Bitcoin IRA?
Until recently, IRA’s were primarily used to hold Stocks and Bonds but now investors are able to buy/sell Cryptocurrencies as well. New companies like iTrustCapital allow you to open a Self-Directed IRA and buy/sell crypto without having to worry about paying taxes. While many investors are waiting for a Bitcoin ETF, investors can already put Bitcoin in their IRA now!
Can you put Bitcoin in your 401k?
This is a great question and is one of the most frequently asked. Rolling over a 401k into a Bitcoin IRA is almost as simple as transferring an IRA into a Bitcoin IRA. The only requirement is that if you are under the age of 59.5, the 401k has to be from a previous employer. This requirement is put in place to avoid companies moving their 401k’s while still employed.
Luckily, if you are over the age of 59.5, you can rollover the 401k even if you are still employed. Again, moving a 401k into an IRA is simply called a rollover and is simple. You can learn more in our Navigating an Employer Rollover article.
But what are the drawbacks of a Bitcoin IRA?
IRA’s can provide huge benefits for investors, but there are still a few things to consider.
Firstly, for Traditional IRA’s, money invested cannot be withdrawn unless you perform a Distribution. Distributions are for those retiring, which usually starts at age 59 ½. It’s important to talk with your tax or financial advisor to learn more about how distributions work.
Secondly, for Roth IRAs, the principal can be withdrawn anytime. If you invest $6,000, and it turns into $12,000, you can still withdraw the original $6,000 anytime.
Thirdly, investors can withdraw profits from their Roth IRA’s under certain qualifying circumstances. These include first-time home purchase, medical expenses, higher education, and more. As always, it’s important to talk with your tax or financial advisor to learn more about when you may qualify.
After understanding the potential benefits and drawbacks, one can see that for investors who are focused on the long term, the tax benefits can dramatically outweigh the drawbacks.
How can I start a new Bitcoin IRA Account (Crypto IRA)?
Investors are able to put money in each year, known as a contribution. This allows you to build the investment account over time.
In 2020, investors could contribute up to $6,000, or $7,000 if they are over the age of 50. This contribution amount typically increases each year, so research how much you can contribute at the time of reading this article.
What if I already have a Retirement Account?
Aside from starting a new IRA and contributing funds, there are two other ways to open one.
First, you can fund your IRA with what is known as a “401k Roll Over”.
For instance, his is where an investor takes a 401k from an old employer and rolls it into an IRA.
In addition, you can fund your IRA with what is known as a “IRA Transfer”.
For instance, his is where an investor takes an Existing IRA from another institution and transfers it to their new Crypto IRA.
What should I be looking for when researching companies?
Above all, it’s important that you do research and find a company that fits your investment goals.
Here are a few important things to consider when choosing the Best Bitcoin IRA Company.
Fees are one of the most important things to consider when choosing a Bitcoin IRA provider. You will often find fees broken down into three separate sections. Ensure you investigate all fees and get them in writing. As a rule of thumb, if you cannot find a companies fees easily on the website, you will want to beware.
- Initial Purchase Fees: A fee is charged upon your first purchase.
- Trading Fees: A fee charged each time you perform a trade or transaction.
- On-Going Fees: These typically include account setup, storage, administration, and more.
Security and Trading
Above all, how the security and storage is handled for crypto assets is arguably the most important. Ask the important questions to find out:
- Security: How the Bitcoin, Ethereum and other cryptocurrency are stored is important. In other words, stick with Institutional Cold Storage Custody like Curv.
- Trading Platform: Research the companies platform and ensure it’s accessible 24/7. User experience and simplicity is very important.
Team and Experience
When considering making investments that impact your potential retirement plans, it’s important to stick with not only a trusted brand, but an experienced team as well. Ensure you can locate the team members on the website and be able to validate their experience in traditional and/or alternative assets.
You will want to ensure the provider you choose has a broad range of investments they offer. iTrustCapital is proud to not only offer the most digital currencies of any Bitcoin IRA platform but even precious metals as an alternative way to diversify your portfolio if you so choose.
We hope you enjoyed this Bitcoin IRA guide and look forward to serving you in the future. If you have questions, please read our Frequently Asked Questions guide or schedule a call.