Traditionally, retirement planning involves opening a retirement account, picking a retirement planning strategy, and turning to financial institutions for your needs. That said, with cryptocurrency on its way to becoming the future, most people are now considering it in their financial plans.
One product connecting the gap between the traditional and new worlds of retirement financing is the crypto IRA (crypto individual retirement account), a modern twist on traditional IRAs. In this article, you’ll learn the basic things you need to know about rolling over to a crypto IRA.
What Is A Crypto IRA Rollover?
First off, one needs an understanding of what a rollover means. A rollover IRA refers to an account used to move investments and money from an existing employer-sponsored retirement plan like 401(k) into an individual retirement account. Rollover IRAs can provide you with a range of investment options.
Since it’s unlikely that your current 401(k) provider offers digital assets, your best bet for crypto investing is rolling over to a crypto IRA. A crypto IRA offers numerous benefits as a 401(k) while gaining exposure to crypto for retirement.
Take note that crypto IRAs, like any other IRAs, are outside of your employment relationship. Thus, you need to work with a reliable crypto IRA provider and open an account. Visit bitcoiniracompanies.com if you want to know the best crypto IRA provider available today.
Crypto IRA Is Closely Similar To Traditional IRA
Like traditional IRAs, crypto IRAs are tax-advantaged retirement accounts.
The only difference is that instead of holding traditional financial instruments like currency, bonds, and stock, crypto IRAs hold digital currencies such as Ethereum, Bitcoin, Litecoin, and more. Other than this, the regulations governing the IRA and the tax advantages they offer are the same.
Benefits Of Crypto IRA Rollover
Rolling over from your traditional IRA or employment-based investment fund has a few benefits.
For one, crypto has significant future potential as an asset and adds diversification to your
portfolio. While the shifting legal landscape, differing global attitude about crypto as a currency, and environmental concerns are causing its volatility, overall, crypto is expected to continue to increase in popularity, value and legitimacy. If this upward trend continues, the potential returns for a crypto-based retirement account are huge.
Aside from its big potential, a crypto IRA rollover is a safe way to gain tax advantages if you want to minimize your crypto tax. Since crypto is categorized as property, your earnings are subject to either long- or short-term capital gains tax. Depending on the account, investments
within a crypto IRA can also grow either tax-free or tax-deferred.
It also protects you from staking rewards taxes. While staking in your crypto IRA is not a feature that’s fully available in most crypto IRAs, it is expected to become available soon.
Drawbacks Of Crypto IRA Rollover
Most of the disadvantages associated with a crypto IRA investment are because of lost opportunities. Since it’s a new type of retirement account, the yield-generating advantages of decentralized finance are not yet available. While this may be available in the future, right now, a crypto IRA rollover can only produce capital gains, thus, losing out on significant passive earnings.
In addition, the crypto world’s volatility can cause emotional traders to be shaken out of their position and incur significant losses. And if a loss occurs in your IRA, it can’t be written off as tax losses.
Lastly, the costs associated with a crypto IRA are higher than those of other alternatives. The costs may include various custodial setups, transactions, withdrawals, and other potential costs and fees.
Traditional Vs. Roth Crypto IRA Rollover
Some traditional retirement plans like a 401(k) do offer crypto for diversification, but most don’t. If you have an account that doesn’t offer crypto, you can simply perform a rollover to a self-directed crypto IRA.
In general, you can set up either a traditional or a Roth crypto IRA, depending on your goal. While both options offer tax benefits, the timing of receiving it can differ. For a traditional crypto IRA rollover, you get immediate tax benefits since your crypto contributions are considered tax-deductible. You defer paying the taxes until you use the fund when you retire.
Meanwhile, a Roth crypto IRA rollover is not tax-deductible. That said, you receive more tax benefits down the road since you avoid paying capital gains tax on any value increase when accessing the funds.
Takeaways
Cryptocurrency is making a name for itself and is continuing to grow. Thus, it’s almost impossible to not be curious about it. As the crypto environment has evolved over the past decade, we’re only seeing an increase in investor interest in crypto as a potential retirement investing option.
If you’re thinking of switching to a crypto IRA, this article has provided you with the necessary information to make a sound financial decision.
