Investing for retirement is a serious decision. Allocating a percentage of every paycheck to your portfolio will pay great dividends in the long run. A retirement portfolio lets you get out of your job sooner. This portfolio is still valuable even if you enjoy working and never plan on retiring. Retirement funds provide a financial safety net that can help you withstand surprises and a rising cost of living.
Individual retirement accounts are a popular path to earlier retirement. These accounts provide tax advantages and let you accumulate stocks, mutual funds, and other assets. Crypto Roth IRAs bring the proven retirement account model to an emerging asset with 5-year returns that comfortably outpace the S&P 500 and NASDAQ Composite. Crypto Roth IRAs provide an attractive investment strategy for long-term crypto investors, but these assets are not for everyone. We will discuss if a self-directed crypto IRA makes sense for your portfolio.
Invest in over 30 cryptocurrencies from your checking account with no trading fees with the Current mobile app crypto feature.
Titan is an investment platform with a team of experts actively managing your portfolio based on your chosen strategy, including cryptocurrencies.
Alto IRA allows you to invest in stocks, bonds, mutual funds, ETFs, real estate, cryptocurrencies, and even gold for your retirement.
How to Include Cryptocurrency in Your Retirement Investing Strategy
Bitcoin’s 2009 launch inspired thousands of cryptocurrencies that came after it. As a result, the digital asset gained attention in some circles before becoming mainstream in 2017 during Bitcoin’s parabolic growth. Bitcoin and other cryptocurrencies have taken investors on a roller coaster of emotions, but the assets have compelling long-term returns.
Every investor should assess their risk tolerance before entering new positions. While risk-free assets have limited returns, high-risk investments like crypto can lead to significant outperformance. In addition, diversifying your portfolio across multiple assets minimizes crypto’s impact during underperformance and can prop up your portfolio when crypto does well.
You can open an account on a crypto brokerage and use their trading platform to accumulate crypto. However, this approach is not the best choice for retiring with crypto. Instead, opening up a crypto Roth IRA or traditional crypto IRA allows you to accumulate crypto while minimizing your tax bill. Traditional crypto IRAs provide immediate tax relief, while Roth IRAs protect you from tax payments on your capital gains.
How Do You Buy Crypto with a Cryptocurrency Roth IRA?
Most cryptocurrency Roth IRAs have trading platforms that allow you to buy or sell crypto. You do not need a digital wallet for most crypto IRA custodians. The crypto IRA providers put your crypto in cold storage. They often use security teams and insurance policies to add extra layers of protection to the crypto holdings.
Many platforms guide you through the simple process of creating an account. Then, you can transfer cash to your crypto IRA and start making investments. While crypto IRAs let you accumulate crypto and lower your taxes, you can’t transfer existing crypto into an IRA account. You have to buy crypto through the crypto Roth IRA’s trading platform instead of transferring it from your digital wallet or a different trading platform. You can ‘transfer’ crypto from outside the crypto IRA by selling the holdings, moving the cash to the crypto IRA, and then using their trading platform to make your new investment.
Invest in over 30 cryptocurrencies from your checking account with no trading fees with the Current mobile app crypto feature.
Titan is an investment platform with a team of experts actively managing your portfolio based on your chosen strategy, including cryptocurrencies.
Alto IRA allows you to invest in stocks, bonds, mutual funds, ETFs, real estate, cryptocurrencies, and even gold for your retirement.
Which IRA Type Should You Use to Buy Crypto?
Investors can choose between a traditional and Roth IRA. Both retirement accounts let you purchase crypto and build a nest egg. Both accounts have annual caps established by the Internal Revenue Service. The IRS used $6,000 as a maximum annual contribution in 2022. People who are 50 or older can contribute $7,000 per year to traditional and Roth IRA accounts. Opening multiple accounts won’t increase your annual contribution limit. You can’t invest in a different IRA if you hit your annual contribution limit with a single IRA. Qualified reservist repayments and rollover contributions do not apply to the annual contribution limit.
These retirement accounts have many similarities, but their tax advantages set them apart. Your decision should boil down to whether you want a tax break now or in the future. Contributions to a traditional IRA get deducted from your taxes. If you earn $100,000 and contribute $5,000 to your traditional IRA, you only pay taxes on $95,000. Reducing your taxable income can put you in a lower tax bracket, allowing you to keep a higher percentage of your money. Some investors with narrow margins rely on these upfront tax savings to make investments. You will owe taxes on withdrawals, but most people make less or zero income during their retirement years. Lowering taxable income during retirement minimizes how much you owe from traditional IRA withdrawals.
A Roth IRA does not lower your annual tax bill. However, you won’t owe taxes on withdrawals or capital gains. If Bitcoin’s price doubles while it is in your retirement portfolio, you won’t owe taxes on those long-term gains. Eliminating capital gains taxes can save you far more money in the long run than the traditional IRA approach.
Reasons to Consider a Cryptocurrency Roth IRA
A cryptocurrency Roth IRA can help build wealth and lead to a smoother retirement experience. We have outlined some reasons to consider a cryptocurrency Roth IRA over other investment choices.
Tax-savings Benefits
Crypto Roth IRAs protect you from taxes on withdrawals and capital gains. So if your assets appreciate significantly, you won’t have to worry about taxes in the future. Traditional IRA clients will have to consider tax payments on their withdrawals and take out extra funds to afford their lifestyle. Crypto Roth IRA accounts let you get taxes over with and not worry about them in the future.
24/7 Trading
Crypto IRAs let you conduct 24/7 trades, something you can’t do in the stock market. 24/7 trading lets you capitalize on price movements and lower volume over the weekends. In addition, you can react quicker to market and world news with 24/7 crypto trading than through stock trading.
Cryptocurrency: Low-correlation Asset
Crypto has a relatively low correlation to other assets. The low correlation makes it possible for crypto to increase in value as other investments decrease in value. While crypto has become more correlated with stock indexes in recent years, it’s still a separate entity and less dependent on how other assets perform.
Portfolio Diversification
Portfolio diversification limits your downside while letting you tap into several investments. You can balance conservative assets with high-risk, high-reward assets like crypto. Crypto can pick up your other assets when they underperform, and your other assets can limit the damage during high volatility. Portfolio diversification will make you feel more confident in your portfolio since one asset isn’t the make or break of your retirement funds.
Potential for Growth
Investors buy assets they believe can yield superior returns based on their risk tolerance. Bitcoin has outperformed the S&P 500 and NASDAQ Composite over the past five years, and several altcoins have outperformed Bitcoin during the same stretch. Crypto enthusiasts can diversify across several cryptos, such as Bitcoin, Ethereum, and Dogecoin. The assets have compelling growth potential based on their past performance.
