A recent survey has shown that over 69 percent of American adults have less than $1,000 in savings. The rising inflation and falling purchasing power of fiat currency make it hard for an average American to save enough for their retirement years. For those who are making an active effort to save money for their post-retirement days, there are a few unique and innovative options available in the form of Individual Retirement (IRA) and 401(k) accounts.
IRAs are the most preferred retirement fund option as it allows individuals to invest in their own capacity year-on-year for their future. The IRAs are administered as per the regulations set by the IRS. Though there are multiple types of IRAs, Traditional IRA and Roth IRA accounts lead the pack in terms of assets allocated.
According to the IRS, once an individual opens an IRA, a third-party custodian has to be assigned to manage the funds. The custodian, with the investor’s permission, can invest the funds in various types of assets like commodities, shares etc.
Traditional IRA and Roth IRA
Currently, the IRS allows individuals to invest a maximum of $5,500 per year into the IRA. The deposits into an IRA are eligible for tax certain tax breaks. In a Traditional IRA, the individual contributes his pre-tax income to the IRA which is exempt from taxes. However, the contribution towards a Roth IRA is made after paying taxes. The IRA can’t be withdrawn until the person attains a minimum age of 59 and a half. Otherwise, it will carry a penalty of 10% of the total funds.
At the time of withdrawal, the total amount in a Traditional IRA attracts regular taxes whereas funds from a Roth IRA are exempt from taxes.
As mentioned earlier, an investor, through the custodian of the IRA can invest in various assets. According to the IRS, Bitcoin is one such asset. Bitcoin IRA facilitates IRA investments in Bitcoin. It is the first company to offer Bitcoin-based IRA accounts.
Investing in Bitcoin IRA
Investing in Bitcoin IRA is similar to conventional IRAs. In order to invest in a Bitcoin IRA, one can either open a new IRA account with fresh funds or transfer the existing IRA and 401(k) accounts to a Bitcoin IRA by simply filling the required forms. Once the process is completed, the user can start investing in the IRA with Bitcoin. The Bitcoin funds are stored in an IRA approved bitcoin wallet, with an active custodian.
Unlike conventional investments, Bitcoin IRA account holders will be holding actual bitcoin in their IRA account. As the value of Bitcoin increases, the investment in IRA also grows. In the end, the account holder will receive the total amount of Bitcoin in the account, which when/if converted will be a lot more than the returns any conventional investment can offer.
Is it Legit?
Bitcoin IRA is a legitimate investment. IRS has already ruled that virtual currency has an equivalent value in real currency and it can be used to purchase goods and services. The same agency, in its Virtual Currency Guidance: Notice 2014-21 confirms that Bitcoin is a virtual currency and can be traded between users and exchanged for other currencies. With Bitcoin regarded as a property, IRA investments in the digital currency are perfectly legal and valid. Bitcoin IRA will be holding the digital currency for the IR account holder as a custodian.
Bitcoin is an emerging cryptocurrency with a finite supply and growing user base. As the number of users increase, the demand for Bitcoin increases. This will lead to an exponential increase in its value, year-on-year (the Bitcoin price trend for past few years will prove it). The rise in its value combined with cumulative Bitcoin deposits into the account by the investor will ensure maximum returns by the end of IRA.
All the regulations pertaining to conventional IRA will be applicable for Bitcoin IRA too. Bitcoin IRA offers both Traditional and Roth IRA options and the account holder has to be at least 59 and a half at the time of withdrawal in order to avoid the 10% penalty. Depending on the type of Bitcoin IRA, respective tax exemptions are applicable as well.