Top 5 Reasons Why You Should Add Crypto to Your Retirement Portfolio with a Self-Directed IRA
The past few years brought about an economic downfall that Wall Street was greatly impacted by, and because the stock market is tied to most retirement accounts, many investors lost a considerable amount of money. This has given future retirees a legitimate reason to express concern over the performance of their 401(k), IRA, and the like. Specifically, it’s left them wondering if they’ll have enough in their nest egg to live off of when they reach their golden years.
A huge lesson can be learned from this, and that is, with so much economic uncertainty, you can’t fully rely on your traditional retirement plan. With that said, smart investors have found another path to take that seems a bit more promising, which is adding cryptocurrency to their retirement portfolio with a Self-Directed IRA.
When crypto is included, which isn’t tied to the government, Wall Street, or the U.S. dollar, it can greatly increase the growth opportunity and stability of a retirement fund. Not to say that crypto can’t be a volatile investment, but at least it doesn’t have the same track record as the U.S. dollar, which has been steadily decreasing in value. It’s clear that crypto has a bright future, and it’s worthy of consideration when it comes to adding it to your retirement portfolio.
Before we dive in, I want to mention that it’s important to do your own due diligence and consult with a financial advisor before making any big decisions.
Ok, let’s get started and jump into the topic at hand to see if investing in cryptocurrency within an SDIRA is right for you.
What is a Self-Directed IRA?
A Self-Directed IRA is an alternative option to a Traditional IRA account, with the difference being that the account holder is not confined to investing in standard IRA assets such as stocks, bonds, and the like.
In contrast to a regular IRA, an SDIRA permits an individual to invest in a broad spectrum of alternative assets such as real estate, oil, precious metals, cryptocurrency, and much more. Additionally, this specific type of retirement account enables an investor to have control over their investment decisions.
The bottom line is that a Self-Directed IRA account will allow you to invest in virtual currencies such as Bitcoin, Ethereum, Cardano, and others. In fact, you’ll even find that there are crypto-specific Self-Directed IRAs, sometimes called a Bitcoin IRA, that make it super simple to invest in these digital assets.
Although the below video touches on real estate, it contains a great overview of how a Self-Directed IRA can help you move away from stock-based investments and into alternative assets that can grow your retirement portfolio beyond what you thought possible:
Standard SDIRA vs Crypto-Specific SDIRA
When it comes to utilizing a Self-Directed IRA to invest in crypto, there are two main account types – a standard SDIRA and a crypto-specific SDIRA (it can be further broken down into a Traditional or Roth account, and we will go into detail on that later). In my opinion, if your goal is to invest in cryptocurrency within a retirement account, then using a crypto-specific Self-Directed IRA is the smartest path to take.
Let’s briefly go over a few things regarding these two account types so you can determine for yourself which is best. For the sake of this comparison, I’ll just discuss the main difference that I feel makes a Crypto SDIRA an obvious winner over a standard SDIRA for digital asset investments, which is the setup process.
With an SDIRA that allows for cryptocurrency investments but is not specifically designed just for that, meaning, other investment types are also allowed, the steps you’re required to go through can be complicated, time-consuming, as well as expensive. Why is this the case? Because typically, to hold digital currencies within a retirement account that’s not crypto-specific, the investor may need to form an LLC, as well as trade through a crypto exchange that works with their specific IRA custodian or provider. Most people who are eager to start investing in crypto are not excited about the fact that they may have to form an entity. As for the cost, here is just one example – those who form an LLC within CA will be required to pay $800 per year to keep it active.
This type of account, as the name suggests, is an SDIRA that deals specifically in cryptocurrency. Regarding the setup, it’s super simple, fast, and convenient, with some providers not even charging any monthly fees, and you’re not required to form an LLC. You would just need to create an account with a service provider, and this could literally be done in 5 minutes. You then fund the account and can start trading as soon as the funds clear.
Why You Should Add Crypto to Your Retirement Plan with a Self-Directed IRA
I touched on a few reasons why having cryptocurrency in your portfolio is a great idea, but let’s go over these in more detail, and discuss a few other benefits as well:
1. An SDIRA is the Best Investment Vehicle for Cryptocurrency Compared to a 401(K) or Traditional IRA
For those of you who would prefer to use a traditional IRA or 401(k) because that’s what you’re familiar with, know that with crypto becoming more mainstream, there may actually be ways to get cryptocurrency into these specific types of retirement accounts. However, most traditional IRA and 401(k) providers, at this point, are not dealing in crypto, so there’s a good chance that your current provider won’t. Plus, if you have an employer-sponsored plan, from a practical standpoint, they may not offer crypto investments.
If you do find you’re able to add digital currencies to a traditional IRA, you may have to jump through hoops to make it happen – meaning, it won’t be as simple as using a crypto-specific SDIRA, and you may even be required to form an LLC.
A Self-Directed IRA is really the best option for adding crypto to your retirement portfolio because this type of account was designed to hold alternative assets such as cryptocurrency, and now with crypto-specific SDIRAs in the mix, it’s really easy to get set up and start investing. And remember, when you utilize a Self-Directed IRA, you have control over your investment decisions and your assets – after all, it’s your money, so you should be the one who directs your retirement funds.
2. Investing in Crypto within a Self-Directed Individual Retirement Account Offers Incredible Tax Advantages
If you’ve been buying and selling crypto outside of a retirement account, then you know all too well what a huge hassle it is when it comes to taxes – reporting every single crypto trade, sale, or exchange, and accounting for all the various prices they were originally bought and sold at. This can be extremely confusing and an unavoidable tax burden that takes place every single year. However, you can easily avoid this scenario by utilizing a Self-Directed IRA.
You see, an IRA is categorized as a tax-advantaged account that can enable you to build wealth for your retirement with either a tax-deferred or tax-free growth setup. Because of this, all the trades, sales, and exchanges that happen inside the account are not creating taxable events.
This is a game-changer for those who invest in crypto and would like to trade to take profits, but are instead holding their assets solely because they’re intimidated by the possibility of creating hundreds of taxable events for the year. Are you starting to see the big picture now? Not only will you not have to worry about figuring out all your capital gains and losses for the year, but if you trade intelligently within your retirement account, you have the power to build a substantial nest egg for yourself and your family.
3. Virtual Currencies are Not Tied to a Single Entity Making them a Less Risky Investment Type for Your Retirement Portfolio
There can be risks with any investment, but because cryptocurrency is decentralized, meaning it’s not controlled by any single entity or government, if there is an economic downturn in an individual market, crypto tends to be less risky. This is in contrast to Wall Street – those who have retirement plans that are tied to the stock market are always at great risk when the U.S. economy is in trouble due to a pandemic, war, as well as media news that sways the market.
As a prime example, during 2020, when the economy came to a halt, which happened in many places around the globe, and stocks plunged, draining retirement accounts along with them, Bitcoin did the opposite; it skyrocketed. Bitcoin went from $7,200 on Jan. 1st, 2020, to $29,329 exactly one year from that date, and its current price is close to $47,300. As you can see, Bitcoin was thriving even as businesses were closing down and millions of people were unemployed, and it’s still holding steady.
At the height of the pandemic, when Wall Street was in a downward spiral, those who had stock-based portfolios most likely wished they had invested in crypto, and those who had invested heavily in Bitcoin early on instantly became independently wealthy and could retire on the spot if they wanted to. So, it’s all about having a wise investment strategy, and as you can see, adding cryptocurrency to your retirement portfolio with a Self-Directed IRA is certainly a step in the right direction.
4. Digital Assets are Known for Being a Great Hedge Against Inflation Which Can Protect Your Retirement Savings
As we discussed, most retirement plans that are not self-directed rely on stock-based investments, so it’s important to consider inflation because it can place a strain on the stock market for a variety of reasons.
For one, inflation pushes the prices of goods and services up; this causes higher costs for businesses and lower profits, and this can make stocks less attractive to investors, leading to a decline in stock prices. Plus, inflation is known to increase interest rates, which can make borrowing money more expensive and reduce the amount of available capital a company has for investment.
Inflation can also reduce the purchasing power of people’s incomes, making them less able to invest in stocks, or afford the goods and services that a company offers.
In addition to this, the American government has been printing money out of thin air over the past few years, lowering its value, and this is one of the reasons we are experiencing inflation at this point. In contrast, the scarcity of crypto, such as Bitcoin, is one element that makes it a great store of value that can be resistant to inflation.
All these inflationary issues come together to create a difficult environment for the stock market and can cause it to underperform, bringing down your retirement portfolio along with it. This is a big indicator of why it’s not a good idea to rely solely on stock-based investments.
5. Adding Crypto to Your Retirement Plan with an SDIRA Allows for Diversification
An important factor to consider when beginning or reorganizing your retirement portfolio is diversification. When you have a diversified portfolio, it simply means that you’ve invested in various asset types.
This strategy can help to minimize risk and maximize returns over the long term. For example, if you only invest in stocks, as I previously discussed, you could lose a good majority of your money if the stock market crashes. However, if you have a diversified portfolio that includes other asset types, all your eggs are not in one basket, so you won’t risk losing everything – this is especially important for those who are close to retiring.
If you’re only invested in stocks, bonds, and mutual funds, as most people are, adding cryptocurrency to your retirement portfolio with a Self-Directed IRA would be a smart financial move. Real estate is another great asset class that can be used to diversify your retirement portfolio through an SDIRA. If you go down that path, I suggest looking into investment properties since they can provide you with a steady stream of income.
Take a look at this post on How To Use a Self-Directed IRA To Invest in Real Estate to find out more about why it’s such a lucrative asset type. I’d also like to suggest reading this article that I know you’ll find interesting – Real Estate Purchases are Being Transformed by the Benefits of Blockchain Technology.
How to Add Cryptocurrency to a Self-Directed Retirement Account
Now that you’re well informed on retirement plans that utilize an SDIRA, it’s time to discuss how to get started using one – it’s pretty simple, and I’m going to provide you with a few details to get the ball rolling.
First – Decide Which Self-Directed IRA Type is Right for You
Assuming you’ve decided to open a crypto SDIRA, you’ll need to choose which type of account is best for your situation – a Traditional, Roth, or SEP account.
Let’s breakdown the differences:
Traditional Crypto SDIRA
Funds in a Traditional SDIRA grow tax-deferred, so you won’t be required to pay the IRS on any investment gains for a particular year. Instead, you’ll be taxed when you withdraw your funds during your retirement years. Additionally, a Traditional Crypto SDIRA permits you to contribute your pre-tax dollars, which means your contributions can be deducted from your taxable income for the year, which can reduce your AGI. You can view the contribution limits for this type of account on the IRS IRA Contribution Limits page.
Roth Crypto SDIRA
A Roth account enables you to save for retirement while enjoying tax-free growth on your investments. How is this possible? The contributions are made with after-tax dollars, which means you have already paid taxes on the money you contribute. This also means that withdrawals from a Roth IRA during retirement years are typically tax-free, which makes it an attractive option for anyone who foresees themselves being in a higher tax bracket when it comes time to withdraw their funds. There are income limits for Roth Crypto IRA eligibility, as well as contribution limits. However, you may be able to utilize a Backdoor Roth IRA to get around the eligibility roadblock. You can view the contribution limits to see if you’re eligible based on your adjusted gross income on the IRS Roth IRA page for 2022.
SEP Crypto IRA
A SEP account, otherwise known as a Simplified Employee Pension, is a retirement savings account that enables business owners, as well as those who are self-employed, to contribute pre-tax dollars towards their future retirement. Contributions to a SEP Crypto IRA can typically be deducted from the individual’s taxable income, and earnings grow tax-deferred, just as they do with a Traditional Crypto IRA. However, one big difference between a SEP and Traditional IRA is that a SEP account allows for a much larger contribution – the rule is that it must not be larger than the lesser of 25% of an employee’s compensation, and for the self-employed, it’s 20% of your net earnings, or up to $61,000 for the year 2022. The IRS has a helpful SEP Plan FAQ page for those who want to learn more about this type of retirement account.
Second – Select the Best Crypto IRA Provider
I’ve done a considerable amount of research while looking for a reputable Crypto Self-Directed IRA provider and found that AltoIRA stood out from the rest. So, this is the provider I’m recommending because I’ve been investing with them for a good amount of time, and I can honestly say that I’m impressed with what they are able to offer and how helpful their customer service is.
I feel that AltoIRA is disrupting the way we think about traditional retirement plans. They’re in line with current and emerging technology and demonstrate modern-day thinking – which has allowed their clients to easily invest in decentralized digital assets.
What Makes AltoIRA Impressive?
- Easy Account Creation: They make it simple to get started – I actually created my account in 10 minutes.
- Exceptional Customer Support: Their support team contacted me to assist with the account set up and to let me know they were there if I had any questions. I didn’t require any assistance, though, because the account creation was self-explanatory.
- Integrated with Coinbase: AltoIRA is directly integrated with the leading crypto exchange Coinbase, and you don’t even have to set up a separate Coinbase account.
- Real-Time Trading 24/7: You have to be careful about signing up with a provider that doesn’t offer real-time trading because if you do, you could miss out on huge profits. When you have an Alto CryptoIRA, you’re provided with real-time trading, so you won’t miss out when trying to buy the dip, and so on.
- Offers 135+ Coins & Tokens: Some SDIRA providers may only offer a few notable coins, such as Bitcoin and Ethereum, but AltoIRA offers 135+ digital assets – from top market cap coins to small-cap coins.
- Affordable: You can start investing with as little as $10, and there are no monthly account fees with an Alto CryptoIRA. You just pay a 1% trading fee.
- Tax Reporting: They do the annual tax reporting for you by submitting the needed documentation directly to the IRS on your behalf.
- Convenient Account Funding: You can add funds directly from your bank account, and for those who want to fund their Alto CryptoIRA with a current retirement account, they allow you to roll over or transfer your funds from your Traditional IRA, Roth IRA, or SIMPLE IRA, 401(k), and 403(b).
I know from experience that they’re a great company that can help you build a substantial nest egg for yourself and your family. If you would like to dive into more details on this company to see if they’re right for you and your financial goals, you can check them out at Alto CryptoIRA.
Additional Crypto News Daily Articles
If you’re new to the world of digital assets, then you’ll find the following articles helpful when trying to increase your knowledge base on cryptocurrency and the technology behind it.
- How to Invest in Crypto: The Ultimate Guide 2022.
- What Do I Need to Know Before Buying Crypto as a New Investor?
- How Much Should I Invest in Cryptocurrency as a Beginner?
Retire Financially Secure by Growing Your Nest Egg with Bitcoin & Various Altcoin
You’re fortunate to be researching this subject at a time when having the ability to invest in digital assets with an SDIRA is gaining traction. This gives you the opportunity to jump on board early, so you’re ahead of the game.
With all things considered, I hope you’ve been motivated to rethink your retirement plan by investing in crypto through a Self-Directed IRA – it’s really a great way to save for your golden years.
Before you go, take a moment to check out my channel which provides news and tips that can help you make informed investment decisions. You can start by watching the video below that covers how Edward Snowden exposed Bitcoin: