Saving for retirement gives you more choices and flexibility in the future. Money becomes more important once you leave behind your main source of income. A retirement portfolio can cover the cost of living, travel, and other expenses. Even if you don’t plan on retiring, a portfolio gives you coverage for medical bills and other high-ticket expenses. Investing now can ease or eliminate financial stress in the future, but each dollar can only go into one asset.
Diversifying your portfolio mitigates risks and can strengthen your total returns. While many people rush to stocks and real estate, digital assets like cryptocurrencies have gained momentum. Crypto IRA accounts sprouted onto the scene a few years ago, allowing investors to save on taxes while accumulating crypto. Does opening a crypto IRA account make sense for your retirement planning? We will cover the pros and cons of opening a crypto IRA account so you can feel confident with your decision.
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.
Should You Invest in a Crypto IRA Account?
Individual retirement accounts let you make investments and save on taxes. You can create IRA accounts for stocks, real estate, and other assets. A Crypto IRA account enables you to trade crypto with the same benefits a stock or real estate IRA provides.
Many people use IRAs to buy and hold investments with promising prospects. Investors put money into these accounts that they won’t have to touch for multiple years or decades, depending on how close they are to retirement. For example, investors who believe in crypto’s long-term potential can benefit from putting funds into a crypto IRA account.
Pros of Crypto IRA Account
A crypto IRA account provides several advantages over a traditional crypto account. We have outlined the key benefits below.
Diversification
Putting all of your eggs in one basket is incredibly risky. Picking the wrong investment can send your retirement portfolio tumbling. Diversification reduces risk by spreading your capital across multiple assets. Crypto is a popular asset that can be a great fit for your portfolio. Virtual currencies have comfortably outperformed popular stock indexes such as the S&P 500 and NASDAQ over the past five years.
Crypto is a volatile asset that positions itself as a high-risk, high-reward investment. You shouldn’t put every dollar you have into crypto, but allocating some funds into crypto and lowering your tax bill can set you up for an enjoyable retirement.
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.
Decentralization
Stock investors have eyed the Federal Reserve throughout 2022 for guidance on the stock market. The Fed’s interest rate hikes and quantitative tightening measures demonstrate how a centralized model can wipe out investors and consumers. However, cryptocurrencies deviate from this financial model.
Every cryptocurrency relies on blockchain technology. It’s the backbone that enables crypto transactions and decentralization. A central authority cannot artificially increase the crypto supply or use tightening measures to cause deflation. Crypto’s decentralization is a valuable perk, especially during financial instability.
Potential for High Returns
Bitcoin has outperformed the S&P 500 and NASDAQ over the past five years. Some altcoins have delivered higher returns than Bitcoin during the same timeframe. Crypto has rewarded early investors for their patience. Crypto has been a roller coaster for most of its history, but the asset class has a strong past performance.
Inflation Proof
You’re guaranteed to lose money if you keep it in the bank. Inflation minimizes the dollar’s purchasing power each year, and with inflation at 40-year highs, your dollar is lowering purchasing power rapidly. Crypto investors don’t have to worry about this trend for their digital currencies. Bitcoin has a fixed supply, making it immune to inflation. No central authority can print out more cryptocurrencies and increase circulation. Each blockchain has public rules and information about supply.
Tax Benefits
IRA accounts keep your taxes low and allow you to build wealth. Traditional IRAs let you defer taxes and pay them later after withdrawing proceeds from your account. Roth IRAs require upfront tax payments, but you won’t owe taxes on your contributions or capital gains.
Cons of Crypto IRA Account
Crypto IRA accounts present numerous advantages, but they aren’t perfect. Every investor should consider any asset’s pros and cons before allocating funds for the investment.
Market Volatility
Crypto assets are extremely volatile. You may have to endure multiple days of 2% price swings in either direction. Volatility can stir our emotions and result in mistakes. Some investors rush to sell everything when asset prices decline. People who trade with emotions can also fall into revenge trading. Revenge trading can lead to impulsive transactions that increase risk and losses. While crypto has rewarded long-term investors, volatility has always been a core element of digital currencies. Crypto is better for investors who can keep their emotions in check during bull and bear markets.
Complexity
Cryptocurrencies require a steeper learning curve if you plan to store your coins in a digital wallet. Crypto valuation models also carry greater complexity since they don’t have revenue or earnings numbers. Aspiring crypto traders will have to learn how to analyze charts and discover patterns.
Loss of Capital
Every investment carries a degree of risk. You can lose your capital with stocks, real estate, crypto, and other assets. Long-term investors have wider timeframes and can wait for their investments to recover after initial losses. Crypto has a higher beta than most assets, meaning it will produce outsized gains or losses depending on the market’s direction.
Fees and Penalties
Crypto individual retirement accounts can get expensive if you don’t read the fine print. Most crypto IRA providers charge a transaction fee. This fee is minimal if you buy and hold crypto, but the expenses can add up if you plan to trade digital currencies.
IRA owners can also trigger penalties through early withdrawals. While Roth IRAs have no tax penalties, you will owe a 10% penalty and income taxes on early withdrawals from a traditional IRA.
