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November 24, 2021

Investing in Cryptocurrency in Your IRA

The cryptocurrency world is booming. Although digital assets are a relatively new asset class, interest is running high, especially among crypto and internet-savvy investors. Investing your retirement account in digital assets such as cryptocurrency is a unique opportunity that can diversify your portfolio and potentially offer substantial returns. However, there is no reward without risk. Placing funds in crypto means an investor must be willing to deal with a volatile and risky asset class.

Here is what you need to know if you decide to invest in cryptocurrency in your retirement account.

Why Invest in Digital Assets?

  • Potential for High Returns - Although investing in cryptocurrency is a very risky and volatile investment, it can potentially result in substantial gains. Bitcoin first began trading at a value of $0.0008 in July 2010 and reached an all-time high of $69,000 in November 2021. It has been very volatile though, as just last year in 2020 it valued under $10,000 and now it has skyrocketed. If you are only investing a small percentage of your overall IRA in cryptocurrency, this high-risk, high-reward situation may be an advantage.
  • Diversification – Many investors stick to stocks and bonds in their retirement accounts. However, there are many more assets available such as real estate, cryptocurrency, and private companies that can bring diversity to a portfolio. By investing in a wide range of assets, you have a hedge against the stock market. This is because the stock market and alternative assets generally maintain a low correlation. Remember: Do not put all your eggs in one basket. Investing in many different types of assets can result in greater rewards and fewer losses overall.
  • Tax Advantages – Investing in cryptocurrency inside a tax-advantaged account (like an IRA) alleviates the burden of having to keep track of trades and calculate all of the taxes owed. As long as the assets are in your IRA account, you will not be taxed on each transaction. You will simply owe taxes based on the account type when you take distributions of your tax-deferred or tax-free gains.
  • Future of Technology – Digital assets continue to gain long-term viability and popularity. More merchants now accept payment with cryptocurrency, there are more exchanges that support the trading of cryptocurrency, and more financial institutions offer cryptocurrency as an investment option. Similar to how the rise of the internet created an increase in demand for digital information and services, cryptocurrency is following a similar path of high demand and value. This is a wealth opportunity that can be accessed by investors who are up to date on the latest technology.
  • Flexibility – When you invest in cryptocurrency with your retirement account, you can buy and sell as you wish without resulting in a taxable event. With checkbook control, you have the power to invest on your schedule to maximize your profits.

How Can I Invest In Cryptocurrency with My IRA?

Here are the steps for placing crypto in a retirement account.

  1. Open a Self Directed IRA account at a custodian. Custodians are responsible for processing the investment requests and transactions as instructed by the Self Directed IRA owner. You have the option of the type of account you would like to open – Traditional, Roth, SEP, SIMPLE, Inherited Traditional, or Inherited Roth. You can also choose between a classic Custodial model or a more versatile Checkbook Control model. 
  2. Create an account at an exchange. Exchanges are where you trade your cryptocurrency. It’s similar to the stock market in the sense that you can buy and sell assets as you wish.
  3. Invest in Crypto. Buy/sell cryptos of your choice in a tax-sheltered account!

Is Investing In Cryptocurrency Right For You?

Digital assets provide the opportunity to invest in a new asset class that can lead to maximized growth and diversification of your retirement portfolio. The optimal mix and allocation of digital assets in your retirement portfolio depends on both your investment strategy and risk tolerance. Be sure to understand that cryptocurrency is a very volatile and risky investment. It is also a complex investment that requires more due diligence to fully understand what it is and if it is the right investment for you.

If you are ready to discuss moving forward with crypto, give a Self Directed IRA expert a call today.

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