Crypto IRAs – What Are They?

With extensive experience as an electrical/software/coding engineer along with having a diverse financial background, Thomas Wettermann’s areas of interest include Machine Learning (ML), artificial intelligence (AI), and Financial Technology (FinTech). For the past few years, Thomas Wettermann has focused on the underlying technologies that support and promote all phases of cryptocurrency, Web 3.0, and metaverse ecosystems.

Bitcoin IRA (source: techbullion.com)

You’ve built up a balanced retirement nest egg including stocks, bonds, mutual funds, and other common investment types. You’ve seen the market cap of many cryptocurrencies explode over the last few years and are now wondering if you can diversify your retirement savings by adding cryptocurrencies.

Well, one way to provide this diversification is by opening a cryptocurrency-funded Individual Retirement Account (IRA).

What are Cryptocurrencies (Crypto)?

Virtual currencies are digital representations of value. Cryptocurrencies (crypto) are one type of virtual currency - they are represented by secured transactions on a blockchain. Cryptocurrencies are not a type of stock, bond, or mutual fund rather they are a type of property, much like gold or silver.

For example, the Internal Revenue Service (IRS) treats cryptocurrencies as property for federal income tax purposes. Therefore, when you sell cryptocurrencies, your capital gains or capital losses can be taxable events.

What Is a Crypto IRA?

A Crypto IRA, also referred to as a Bitcoin IRA, provides you with the tax advantages of a conventional IRA and also grants you the opportunity to invest in cryptocurrencies.

There are two types of conventional IRAs. There is the traditional IRA where contributions are made with pre-tax dollars. And there is the Roth IRA where contributions are made with after-tax dollars. Both have their own rules and restrictions regarding fund accessibility and eligibility.

Crypto IRAs can be established as either a traditional IRA or Roth IRA. However, since the IRS considers crypto as a property, you can only hold cryptocurrencies in self-directed IRAs (SDIRA).

An SDIRA allows you to hold alternative assets for retirement savings, like real estate, precious metals (gold and silver), commodities, and cryptocurrencies. Importantly, SDIRAs have the same contribution limits as conventional IRAs.

Unlike conventional IRAs, SDIRAs are “self-directed” - this means that you as the investor must directly manage your alternative assets.

All the views expressed on this site are those of Thomas Wettermann and do not represent the opinions of any entity with which Thomas Wettermann has been, is currently, or will be affiliated.

Trading digital financial assets such as cryptocurrencies can carry a high level of risk, and may not be suitable for all investors. Before deciding to invest, purchase, and/or trade cryptocurrency you should carefully consider your investment objectives, level of experience, adversity to risk, and volatilities. The possibility exists that you may sustain a loss of some or all of your initial investment; therefore, you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with cryptocurrency trading, and seek advice from a qualified and independent financial advisor.

Thomas Wettermann is not an independent financial advisor. Any opinions, news, research, analyses, prices, or other information contained on this website is provided as a general market commentary of Thomas Wettermann and does not constitute investment advice. Thomas Wettermann will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from the use of or reliance on such information. All opinions expressed on this site are owned by Thomas Wettermann and should never be considered as advice in any form.