Don’t look now, but Bitcoin (BTC) is on the rise again. This could be good for Self-Directed Roth IRA investors. The longest running cryptocurrency is at $7,950 as of this writing, and that compares to a price of $3,179 in mid-December of 2018. Those who predicted the demise of Bitcoin and other cryptocurrencies have been proven wrong.
Bitcoin’s resurgence in popularity has more than a few investors contemplating whether to include it in their retirement portfolios. While no one can or should predict the future of this cryptocurrency, it is worth watching.
There are still many challenges that Bitcoin and other cryptocurrencies must face, not the least of which is how to assimilate into the broader investment and business worlds. And there are no guarantees of another remarkable price increase like that of the last six months.
But if you do conclude that Bitcoin should be in with your other retirement investments, a Self-Directed Roth IRA might be the ideal investment vehicle. Here’s why:
You can withdraw from your Self-Directed Roth IRA tax-free
While there are no immediate tax breaks for contributing to a Roth, you will not have to pay taxes on the distributions—both the contributions and earnings—when you retire. Whether to choose a Roth or Traditional IRA will depend on factors such as age and income.
Younger contributors will get the most significant advantage from tax-free growth in their accounts, while those with lower incomes will find that the Roth, with its after-tax contributions, makes the most sense. A Traditional IRA may work better for those with higher incomes who are looking to lower their taxable incomes for the year.
Self-Direction for your Roth IRA
If you decide to invest in Bitcoins for your retirement, you will need to open a Self-Directed IRA. Most financial institutions that offer Roth IRAs will limit the types of investments you can make. The Self-Directed Roth IRAs allow you to diversify into alternative investments including real estate, private stock, hard money loans, tax liens, and precious metals. Bitcoin fits in with these types of non-traditional investments that go beyond stocks, bonds, and mutual funds.
After you open the account, you will need to add funds to the account using a direct transfer from an existing IRA or by rolling over a 401(k) before you can start buying Bitcoins. Self-Directed IRAs must meet the same regulations as Traditional IRAs, which means that the owner of the IRA typically may not access the money within a Traditional IRA until they are 59½ years old. With a Roth, you can withdraw your contributions, but not the earnings, at any time.
What is the process?
Now that the advantages of the Self-Directed Roth IRA are clear, here’s how you can use it to get started investing in Bitcoin:
- Open a Self-Directed Roth IRA LLC.
- Rollover or transfer funds to the plan.
- Have the assets transferred to the LLC.
- As manager of the LLC, you may open a bank account for the LLC.
- Utilizing checkbook control on your account, you can make your Bitcoin Investment.
- Then, sit back and enjoy the benefits of tax-free gains in your account.
You may choose any crypto exchange to buy, sell, and trade your Bitcoin. And you can use a hard or digital wallet to invest with your cryptos. It’s entirely up to you. The benefit of using your Self-Directed Roth IRA is that all gains from the investment move back into the account tax-free. And all future withdrawals will be tax-free as long as the Roth account has been open for at least five years and you are 59 ½ years of age or older.
Bitcoin can add diversity to your investment account
Bitcoin has been and will likely continue to be a volatile investment. Speak to an experienced financial adviser before investing with this magnitude of risk. If you are comfortable with it, Bitcoin will add an element of diversity, along with the opportunity for impressive gains, to your retirement account.