Why Buying Bitcoin With Your Roth IRA May Be A Good Option For You

Why Buying Bitcoin With Your Roth IRA May Be A Good Option For You

2018 was the year that showed investors just
how fragile the economy still is. As the stock market went through record highs
and lows, many investors began to look for other ways to diversify their
financial portfolios in the seemingly unstable financial climate.

It was during the recession of 2008 and 2009
that Bitcoin proved that it was one of the most viable alternatives for
investors who wanted to move past using the stock market as their only
investment option.

The following guide will delve deeper into why
using a Roth IRA to buy Bitcoin may be the best option for those who are
seeking a Digital IRA. This guide will also provide benefits of the
cryptocurrency and the different financial trends investors can expect to see
with Bitcoin.

What
Are The Benefits Of A Roth IRA?

One of the key benefits to this type of
investment option is that, when compared to other IRAs, a Roth IRA offers
tax-free gains. Another key benefit is that there are no required minimum
distributions, or RMDs, once the account holder reaches retirement age.

These types of accounts are similar to regular
IRAs, but they offer some differences and benefits over Traditional IRAs. With
all IRAs, Roth or Traditional, there are yearly limits on contributions. In
2019, the limits are as follows – annual contributions are limited to $6,000 a
year and $7,000 a year for account holders over the age of 50.

The primary difference is that the Roth IRA is
taxed based on contributions and not distributions. On the other hand,
Traditional IRA tax distributions and not contributions.

For freelancers, independent contractors and
self-employed account holders, a SEP IRA is a retirement plan option. This type
of retirement plan offers higher contribution limits.

So, why is a Roth IRA best for Bitcoin? If you
are expecting that cryptocurrency will continue to make gains in the digital
currency market over the next 10 years, you will expect to see your gains
increase and all of these gains will be completely tax-free.

Roth IRAs also do not have RMDs as previously
mentioned once an account holder reaches 70 1/2 years old. With Traditional
IRAs, these types of distributions are mandated.

There are also some things to consider when
you have a Roth IRA account. The first thing to consider is that the
contributions to this type of account is not deductible.

There are requirements regarding income with
Roth IRAs.

Self-Directed
IRA

A Self-Directed IRA allows the account holder
to choose the particular type of asset classes for their IRA. Although this
gives the investor more flexibility, the investor is also held in higher
compliance.

Investors with Self-Directed IRAs must still
have their investments go through a custodian. However, it is up to the
investor to ensure that only legally compliant investments are kept in the
account.

This type of IRA account is different from
retirement accounts that can be classified as conservative (mutual funds, money
markets, bonds, etc.) or one that is dependent on an unstable market like the
stock market.

So, what is allowed in a Self-Directed IRA?
Besides Digital IRAs, other compliant investments include:

• Certain real estate
• Precious metals
• Specific natural resources

An example of a non-compliant investment for a
Self-Directed IRA is real estate that was purchased for the investor’s personal
use.

Digital currencies are allowed in Self-Directed
IRAs, and these types of accounts are called Digital IRAs as previously
mentioned. This is one reason why Self-Directed IRAs are considered ideal for
Bitcoin. The gains from this type of investment have a higher potential for
growth, while also being deemed riskier. In addition, the distributions are
tax-free.

The
Advantages Of Investing In Bitcoin

Bitcoin is not only the most well-known
cryptocurrency, but it was also the first cryptocurrency on the market. It was
introduced to the public during the midst of the financial crisis of 2008-2009.

It was this backdrop that allowed Bitcoin to
shine as fiat currencies were taking hard hits from the economy.

Bitcoin is a blockchain or a decentralized
ledger of each BTC transaction. This ledger bypasses the cryptocurrency’s need
to be regulated by regular banks and other lending institutions. This process
is achieved by using cryptography instead of using humans as intermediates.

Because this cryptocurrency is decentralized,
it is typically the responsibility of the investor to ensure that they have the
necessary knowledge to make sure their individual Bitcoin is secure.

Even though Bitcoin works independently of
financial institutions, there are some governments around the world that want
to place regulations on the cryptocurrency. However, banking regulators in the
United States have appeared to be hesitant to suggest restrictions and instead
have embraced the growth and development of the blockchain industry.

As of 2019, there has not been a clear definition
of how or if cryptocurrency should be considered an asset class. If there are
any regulations that may appear later, they may cause Bitcoin to lose its
appeal to investors with Roth IRAs.

It is important to note that the IRS does
require that investors have documentation of each Bitcoin transaction no matter
the size. This is because the IRS classifies this type of currency as property.

As a result, many Bitcoin investors are faced
with the headache of having to keep track of their cryptocurrency transactions.
On the other hand, if the Bitcoin is kept in an IRA, the IRS will consider the
distributions to be income.

Opening
A Bitcoin IRA

As previously mentioned, even if you wanted to
place the Bitcoin in a Self-Directed IRA, you will need a custodian. However,
there are some advantages to this process. There are some investment companies
that will store the currency on your behalf.

In addition, some of these companies will even
offer investors insurance coverage for their Digital IRA. These types of
protections help to give investors peace of mind.

In order to open
a Bitcoin Roth IRA, you will need to do a rollover from an existing
IRA retirement account that qualifies. A financial advisor can assist you with
this process.

As Bitcoin shows no signs of going anywhere
and with the unsettling feeling that the economy could face another recession,
investors are looking for ways to create more stability with their portfolios.
A Bitcoin Roth IRA is an option for those who want to add cryptocurrency to
their diverse financial portfolio.

Published at Sat, 05 Oct 2019 06:51:19 +0000