Many people fail to realize this, but investing in Bitcoin for retirement is absolutely the best way to diversify your portfolio and experience much higher returns than you would if you invested for the short-term. But if there’s one thing that everyone needs to know about cryptocurrency it’s this – this investment is incredibly volatile and it certainly has its risks as well.
Are you looking to invest in Bitcoin? And are you looking to boost your retirement portfolio for the long-term? Keep reading to discover the truth about opening a Bitcoin IRA.
Bitcoin IRA: What Is It?
Ultimately, this type of retirement account is a self-directed IRA, but within it you are allowed to purchase alternative investments like cryptocurrencies and precious metals. Those types of investments are typically excluded from traditional IRA accounts.
The main reason why people consider investing in Bitcoin in their individual retirement account is because they need a way to diversify their portfolio. Besides that, it’s also a great investment that’s made massive returns over the years, even though it’s been on a downward trend of late.
Guess what? This downward trend is a massive opportunity for you. It’s one more way to get in on the ground floor of this investment vehicle before it takes off like a rocket once again.
And the interesting thing…
Believe it or not, so many individual investors are missing the boat on this huge opportunity. It’s estimated that roughly 2-5% of IRA investors purchase alternative assets, meaning roughly 95% of the rest of the country is only investing traditionally, which is a huge mistake in my opinion.
The Inner Workings of a Bitcoin IRA
Are you wondering how a Bitcoin IRA works? Yes, most people have no idea how to get started with this investment.
It’s pretty simple to understand the basic concept.
And to simplify it even further, it actually works almost nearly identical to the way that a normal and traditional IRA works. But in this case, you’re going to purchase cryptocurrency or you can even buy precious metals in your self-directed IRA as well.
Even better, you have a few options and opportunities to choose the style of self-directed IRA best suited to meet your needs. You can go with a traditional self-directed IRA or a Roth self-directed IRA.
Each of these account styles has their benefits, and these benefits typically come down to the type of tax advantage you’re looking to receive.
A traditional IRA is funded with pretax dollars, whereas a Roth IRA is funded with income that was already taxed, so with a Roth self-directed IRA you get to keep all of the proceeds, and a traditional self-directed IRA you must pay taxes when you take distributions upon reaching retirement age.
The contribution limits for each type of account are the same as well, just like a traditional or Roth IRA that isn’t self-directed. The contribution limits are $6000 for individuals below 50 years old, or $7000 if you are 50 years old or greater in 2021.
Bitcoin IRA Options for Self-Employed and Small Business Owners
If you own a small business or you’re self-employed, you have the opportunity to choose a simple IRA or SEP IRA, or even pick a solo 401(k).
Why would you want to deviate from a self-directed IRA? The beauty of these self-employed and small business focused accounts is that the contribution limit is substantially higher. And even more importantly, you could take your normal IRA and rollover funds into any one of these accounts to beef up your contribution limits even more.
It’s definitely worth it to take advantage of these options for self-employed and small business owners. As an example, with a SEP IRA, you can contribute 25% of your compensation, or $58,000 in 2021. That’s a much bigger difference than the $6000 that you’re allowed to contribute into a self-directed IRA.
With this style of account, you can grow your retirement funds much faster and invest much more, which will compound your wealth even further.
The Major Benefits of Opening a Bitcoin IRA
Are you still on the fence about investing in Bitcoin for retirement? I certainly understand, because this is a volatile investment and most people fear the wild ups and downs that Bitcoin could take.
Guess what? The advantages in my opinion far outweigh the downsides. As a matter of fact, the incredible tax benefits alone are reason enough to begin investing in cryptocurrencies like Bitcoin, Ethereum, Litecoin, and Ripple.
What are the benefits? They are as follows:
- Tax benefits – the biggest reason to open a Bitcoin IRA is the amazing tax advantages that so many people get to make the most of. As I alluded to earlier, you’ll either make tax-deferred or tax-free contributions to your cryptocurrency IRA, and you either pay the taxes upon taking distributions or your distributions remain tax-free, depending on how you set up your account. Investing in this account because of the tax advantages will help you grow your retirement wealth very quickly. And remember, you don’t have to pay taxes at all as long as the money is held in this account, so if you’re a young person investing in a cryptocurrency IRA, paying taxes isn’t going to happen until very far in the future.
- High return potential – Bitcoin might be volatile, but it’s the one investment that is has quickly turned average and ordinary people into millionaires over the past 10 years. And rightfully so, because Bitcoin traded for $5200 in the middle of March 2020, and it’s currently trading for more than $32,000 a year and three months later, which is more than a 400% return.
- Diversification – investing in stocks, bonds, mutual funds, T-bills, and other traditional assets is fine. But to further diversify your portfolio, you need to invest in cryptocurrencies like Bitcoin; precious metals, or other alternative investments.
As you can see, investing in Bitcoin for retirement is definitely a smart idea. It has many wonderful advantages including huge tax breaks that you do not get outside of an individual retirement account. Do yourself a favor and begin investing now to help set up a healthy retirement in the future.
Danis Woods in Businessman, investment banker and stock exchange traders. On the same time he loves writing financial blogs to shed lights on different aspects that new and existing businessman are not aware of.