Cryptocurrency Investments: Why They’re Becoming More Popular
Cryptocurrency investments are becoming increasingly popular as people look for new ways to diversify their retirement portfolios and increase their savings. Self-directed individual retirement accounts (IRAs) are a great way to invest in cryptocurrency while taking advantage of tax benefits. While investing in cryptocurrencies can be volatile, IRAs offer long-term potential and stability.
There are two main types of crypto Roth IRAs: those provided by traditional IRA providers, and those provided by crypto IRA providers.[0] Traditional IRAs allow you to invest in stocks, mutual funds, or exchange-traded funds (ETFs).[1] A Self-directed IRA is an investment account allowing for self-managed trading of precious metals, real estate, and cryptocurrency.
When it comes to taxes, cryptocurrencies are treated as property by the IRS, and cryptocurrency transactions are taxable.[0] When you sell, trade, or dispose of cryptocurrency in any way and recognize a gain, you must pay taxes on the profit.[2] On the other hand, if you incur a loss, you can deduct that on your taxes.[2] If one holds onto a cryptocurrency investment for more than a year and then sells it for more than what was paid for it, a long-term capital gain is realized.[3] Gains from these investments are subject to long-term capital gains tax rates, which may be as low as 0%.[3]
When it comes to investing in cryptocurrency through an IRA, you’ll need to enlist the help of a custodian.[0] You can open a self-directed IRA to invest in cryptocurrency, but keep in mind that these accounts tend to be more expensive than traditional IRAs.[4] Some of the notable crypto IRA providers include iTrustCapital, BitIRA, and Bitcoin IRA.[5]
Staking crypto is another way to earn rewards for holding cryptocurrencies and providing a built-in investor and user base to give the coin value. By staking your virtual currencies, you can receive money that is considered taxable income.[3]
Overall, investing in cryptocurrency through an IRA can be a great way to diversify your retirement portfolio and realize tax-advantaged gains. However, the extreme volatility of cryptocurrencies makes them a not-so-easy investment when talking about retirement, with the jury being out on whether including cryptocurrencies in a 401(k) retirement plan is sound financial planning or gambling with the future.[6] As such, it is important to do your research and understand the fees, tax implications, and risks associated with cryptocurrency investments before taking the plunge.
0. “Cryptocurrency IRAs: Advantages and Disadvantages” www.investopedia.com, 18 Jan. 2023, https://www.investopedia.com/tech/pros-and-cons-investing-bitcoin-iras/
1. “9 Different Ways to Legally Avoid Taxes on Cryptocurrency” financebuzz.com, 18 Jan. 2023, https://financebuzz.com/how-to-avoid-cryptocurrency-taxes
2. “How Is Cryptocurrency Taxed? (2022 and 2023 IRS Rules)” www.fool.com, 18 Jan. 2023, https://www.fool.com/investing/stock-market/market-sectors/financials/cryptocurrency-stocks/crypto-taxes/
3. “Your Crypto Tax Guide – TurboTax Tax Tips & Videos” turbotax.intuit.com, 18 Jan. 2023, https://turbotax.intuit.com/tax-tips/investments-and-taxes/your-cryptocurrency-tax-guide/L4k3xiFjB
4. “Should You Invest in a Bitcoin IRA? – The Balance” www.thebalancemoney.com, 18 Jan. 2023, https://www.thebalancemoney.com/should-you-invest-in-a-bitcoin-ira-4171891
5. “The 6 best IRAs for trading bitcoin and other cryptocurrencies” www.businessinsider.com, 18 Jan. 2023, https://www.businessinsider.com/personal-finance/best-bitcoin-cryptocurrency-iras
6. “Roth IRAs: The ideal long-term cryptocurrency investment?” cointelegraph.com, 18 Jan. 2023, https://cointelegraph.com/news/roth-iras-the-ideal-long-term-cryptocurrency-investment
