Before you get a frown on your face with the name bitcoin, can you picture people having to buy stuff with stacks of gold? Well, as absurd as it might sound, that was the reality before the invention of paper money; they had to measure the value of products with gold or other precious metals. Now, what happens if you don’t have to carry around wads of cash to buy stuff? Can we forgo money and move without it? And that’s where the concept of digital currency comes into the picture.
For a long time, it was difficult to find a currency system that will not involve the bank or government. The emergence of bitcoin in 2009, resolved all that dilemma, albeit with loads of skepticism. Now with a decade of trust behind it, bitcoin is a more mature concept for people to grasp and rely on. Let’s read on to find out more about bitcoin and how you can add it to your IRA.
What Is the IRA?
Before diving into bitcoin IRA investment, you need to understand the IRA. The acronym IRA stands for an individual retirement account, it is an investment portfolio launched in the USA back in 1970. It allows you to save for retirement with tax-free settings; tax-free trading, tax-deferred gains, and tax-free gains; this investment allows you to tax-free savings until you retire. There are two types of IRA, traditional and Roth IRA where you can invest in.
With Traditional IRA, you can get a tax reduction for every IRA contribution or investment and unlimited trade benefit that will not come under the tax. Your income will not be taxable until retirement. With Roth IRA you can make IRA investment only with your taxed income, your savings double tax-free, and withdrawal will also be tax-free as your income was already taxed. The key difference here is, with a traditional IRA you pay tax later, but with Roth IRA you pay tax while you are saving. In addition to IRA, there is also a 401K retirement plan that involves saving from your paycheck, mostly sponsored by your employer.
Why Are Bitcoins A Good Option for the IRA?
So, what makes bitcoin IRA a good investment option over other investments? Shouldn’t you go for something tangible like a property or other assets, or even stocks and bonds? To put it in layman’s terms, adding Bitcoin in an IRA provides a higher growth opportunity than any other traditional investment. Besides, with a traditional cryptocurrency platform, you have to pay tax for each crypto trade.
Bitcoins IRA allows you to buy and sell cryptocurrencies without worrying about taxes; since it provides tax-free trading to the account holders. As banks have no control over bitcoins, you gain more security, flexibility, and a chance to limit inflation. Even if you are concerned about the market volatility investing only 5% of your savings to bitcoin you can make a good fortune.
What Advantage Does Bitcoin Have Over Real Money?
The mechanics of our current economy boils down to one simple factor- our trust. We put our trust in the government to provide value for our cash. But the problem arises with the government having the sole power to dictate the value of money and to control its production. It can produce as much money as it wants, resulting in inflation and bringing down the value of your cash.
But with digital cryptocurrency or bitcoins, the authority is entirely decentralized, you have the sole ownership of your currency, no government or bank can control it or seize it from you.
Starting A Bitcoin IRA
Bitcoin IRA investments are considered worthwhile investments as people are getting more aware of it. If bitcoins have earned your credibility, you can start investing in them with your IRA. You can start a bitcoin IRA in three ways- by opening a new IRA account, by a 401k rollover, or by transferring funds from an existing IRA fund. 401k rollover allows you to transfer funds from a 401k to another 401k or an IRA.
Steps for Bitcoin IRA Investment
If you have a proper understanding of how IRAs work, bitcoin investment will be a breeze for you. bitcoin is considered as any other asset by the internal revenue service; other than being a cryptocurrency bitcoin follows the same tax treatment as any other property. Here we have broken down the steps you have to follow for a bitcoin IRA investment.
Find the Right IRA
Different IRA features different benefits and limitations. For bitcoin find the right IRA system that works for you. If your IRA company doesn’t provide bitcoin investment, you can go for a self-directed IRA, which will not limit your investment to certain assets. After opening a self-directed IRA you can move your fund from your current IRA to the new one.
Manage A Bitcoin Wallet
A wallet is similar to a deposit box for cryptocurrency. Your bitcoin wallet will hold all the information regarding your transaction and the use of bitcoins. You can either establish the wallet in your name or take an intermediary step by opening a limited liability company (LLC) for your bitcoin wallet. Direct ownership might cost you more as you have to pay a certain commission to IRA providers.
Fund Your Bitcoin Wallet
Your bitcoin wallet must be funded with capital from your IRA. Funding from other sources might result in tax complications with the internal revenue service (IRS). Even the expense related to opening your bitcoin wallet should be linked to your IRA fund. It reduces any discrepancy while managing your bitcoin IRA.
The Bottom Line
Bitcoin is more like the internet; while the internet provides unlimited access to information, bitcoins provide free and universal access to your money. no one ever thought about how the internet will influence every aspect of our life during its inception. But look what it had achieved in its short journey- corporations like Amazon, Google, Facebook, and the possibilities are still growing.
Likewise, Bitcoin can fundamentally change our financial landscape with its endless potential. Who knows the future generation might ridicule us for using paper-based cash for transactions as we have done to our gold trading ancestors? So, if you want to tap into those potential, you should make up your mind about bitcoin for IRA investment.