Although cryptocurrencies are a very new asset, they are quickly making inroads into mainstream finance. In a span of just a few years, both individual investors and large institutions have shown increasing interest to invest in this new and enticing asset class.
With BitIRA, you have the option to open a unique form of retirement account, called a cryptocurrency IRA. This self-directed IRA (SDIRA) will not only allow you to include various cryptocurrencies and other assets in a single retirement portfolio, but also gives you the option to convert an existing IRA or eligible employer-sponsored account (such as a 401(k)).
Since digital currencies within an SDIRA represent a new form of investment vehicle, you may be unfamiliar with some of the details surrounding the opening and managing of a cryptocurrency IRA. In this article, we’ll explain the various benefits of these IRAs, as well as outline the steps we’ve taken to set the highest of standards in terms of service provided.
What are the benefits of investing in a cryptocurrency IRA?
By opening a self-directed cryptocurrency IRA (also known as a digital IRA), you have opened up your savings to numerous benefits that the more conventional retirement account can’t access. Some of these include:
- Tax-free growth — While capital gains on cryptocurrency holdings (which can be substantial) are usually subject to taxation, this doesn’t hold true for digital currencies held within an IRA. So long as you don’t make any withdrawals from your retirement account, any gains made by the tokens held within it are tax deferred. Given that the price of a token can sometimes quadruple within the span of a few months, this alone makes for a very tantalizing prospect.
- Diversification — Conventional IRAs are generally limited to stocks and mutual funds, leaving them highly vulnerable in the case of a stock market crash. Plunges in individual equity prices, as well as widespread crashes, have gathered plenty of infamy, especially in the wake of the 2008 financial crisis. In contrast, a cryptocurrency IRA allows you to hedge your savings with a plethora of different assets, which include not only cryptocurrencies but also highly reliable additions such as precious metals and real estate.
- Limit inflation — Ever since the gold standard was abolished, the global economy has seen an unprecedented amount of inflation as more and more free-floating cash has been pumped into it. This has slowly but surely eroded the purchasing power of all of the world’s currencies. On the other hand, most cryptocurrencies come equipped with a “hard cap” which dictates the maximum amount of tokens that can exist in circulation, preventing artificial inflation of the market. Even most of those that do not have a hard cap feature various capital controls by their issuers to prevent inflation.
- Cut out banks — With a cash-driven investment vehicle such as a conventional IRA, your savings are subject to the whims of central and private banks, as both are known for their frequent manipulation of fiat currencies. Because cryptocurrencies are entirely decentralized, no bank or similar authority can manipulate their value, seize them or compromise your savings in some other way.
Are there any limitations to the type of IRA in which you can hold cryptocurrency? What are the types of IRAs that can hold cryptocurrencies?
Currently, there are four different account options available to you once you’ve chosen to open a cryptocurrency IRA. The first two are geared towards individuals, while the latter two are oriented towards businesses. Let’s go over each of them to help you figure out the ideal choice for your future.
- Traditional — A Traditional SDIRA offers greater flexibility on your contributions, but also carries limitations when it comes to distributions. While annual contributions to this type of account are tax-deductible, there is a mandatory withdrawal at 70½ years of age. Additionally, while you can withdraw funds before the age of 59½, doing so will incur a 10% penalty. Taxation happens whenever a distribution is taken.
- Roth — Compared to a Traditional SDIRA, a Roth self-directed account does not allow you to deduct annual contributions from your taxes. However, this is offset by there being no taxation on your distributions. Additionally, there is no mandatory withdrawal at 70½ years old. Roth SDIRAs also allow you to take distributions of your principal without penalty after a five-year holding period is met, no matter what your age.
- SEP — A Simplified Employee Pension (SEP) is the employer’s Traditional SDIRA, so to speak. If you are the owner of a small business with fewer than 25 employees, you can make contributions to your employees’ retirement accounts of up to 25% of their income that are then deferred from your taxes. There are no limitations to the type of business when it comes to opening an SEP, and it’s also an excellent retirement choice if you are self-employed.
- SIMPLE — The Savings Incentive Match Plan for Employees (SIMPLE) is an SDIRA for businesses with less than 100 employees. With SIMPLE cryptocurrency IRAs, a portion of employees’ salaries is taken out each month and placed into their retirement account. The employer matches the same contribution to the employee’s account, and these contributions are tax-deferred for the employer on an annual basis.
What types of accounts can I roll over into a cryptocurrency IRA?
Many of our customers come to us with one or more retirement accounts that they would like to incorporate into their new SDIRA with minimal hassle. Our team of experts is always ready to help you make the transition once you’ve decided to expand your retirement portfolio.
If you already have an existing retirement account and would like to roll it over into your new self-directed cryptocurrency IRA, we will gladly guide you through the process and assist you with much of the paperwork. Examples of conventional accounts that we often roll over for our customers in order to create their cryptocurrency IRAs include:
Part of our service is ensuring that the rollover process of an existing retirement account into a self-directed cryptocurrency IRA goes smoothly. This includes transferring our customers’ existing assets without incurring any penalties or making any distributions. Additionally, some of the conventional accounts listed above come with restrictions when it comes to rollovers. If you are unsure whether your account is eligible for a rollover, contact a BitIRA Digital Currency Specialist and we will work with you on figuring out if, when and how the account can be included into your cryptocurrency IRA.
Having a cryptocurrency SDIRA with BitIRA gives you an immense amount of freedom when it comes to managing your retirement savings. Provided you’ve adhered to regulations, you can trade cryptocurrencies held within the cryptocurrency IRA without incurring financial penalties. If you so choose, you can also take distributions out of the SDIRA whenever you desire.
What is the best cryptocurrency to invest in? How should I pick the cryptocurrencies I place into my IRA?
The first question here is one that every crypto investor asks, as it can be difficult to tell which of the more than a thousand tokens on the market are winners. The second of these questions is more easily answered since we’ve hand-picked the best cryptocurrencies for purchase within an IRA based on numerous factors.
We currently offer eight premier tokens to choose for investing in your cryptocurrency IRA, and the choice should be made based on your individual desires and goals as well as your long-term investment strategy. We are also constantly assessing the crypto market to see if a token becomes exceptional enough to include it in our roster. The eight cryptocurrencies we presently offer are:
- Bitcoin — Without mincing words, Bitcoin is the token that ushered in the budding crypto market we have today. Compared to some of the other entries on this list, its beginnings were very humble: it was created by an anonymous developer who envisioned a digital currency free from any government or bank. And while its beginnings were humble, its status today is anything but, as it holds by far the biggest price per-token and is still treated as the “go-to” coin by many.
- Bitcoin Cash — Bitcoin Cash came about nearly a decade after the original token was created. It was the result of a “hard fork” caused by developers’ disagreements over Bitcoin’s future trajectory. Those who wound up creating Bitcoin Cash wanted a version of Bitcoin that would more aptly fall in line with the “currency” part by requiring lower transaction fees. Since its inception, Bitcoin Cash has survived numerous challenges to its claim as a viable alternative and now ranks as the fourth most popular coin on the market.
- Ethereum — While Ethereum is viewed by many as Bitcoin’s primary competitor, its inner workings and the agenda of its developers are notably different. Many think of Ethereum as a cryptocurrency, but the token’s true name is actually Ether. Instead, Ethereum refers to an individual blockchain network that allows others to create applications and smart contracts on it, which has given the token exceptional long-term promise and rightly placed it right behind Bitcoin in terms of market capitalization.
- Ethereum Classic — Ethereum Classic sprung to life in a similar fashion as Bitcoin Cash, yet for the opposite reasons. After a major bug was discovered in Ethereum’s network, the developers made significant changes to its blockchain workings as a response, which weren’t universally accepted. This led to the creation of Ethereum Classic, which is much more similar to the original token. And although Ethereum Classic doesn’t enjoy the market capitalization or big-name backing of its “younger” brother, its developers nonetheless continue working diligently on the network and the coin sees plenty of use.
- Litecoin — Litecoin was the first “altcoin” to truly address the growing scalability problems of both Bitcoin and Ethereum, aiming to create a cheaper token with many more units. This allowed for both faster and cheaper transactions compared to the two stalwarts, along with easier mining. Unlike Bitcoin Cash, however, Litecoin is more brand-oriented: besides being developed by a former Google employee, the team behind Litecoin are constantly seeking new business partnerships to promote the coin, which has led to its status as the fifth-largest coin in market cap terms.
- Ripple — Similarly to Ethereum, Ripple isn’t merely a token, but an individual blockchain network that uses the XRP coin to facilitate transactions. In contrast to some of the other tokens, Ripple’s developers have always intended their coin to be an enterprise solution and have consistently strived to promote it among banks and financial institutions. These tireless efforts, along with Ripple’s innovation as a decentralized payments protocol, have even allowed XRP to briefly surpass Ethereum’s market capitalization at one point.
- Zcash — As other token developers followed their own agendas, the team that created the Zcash altcoin decided to focus on the underlying principle behind all cryptocurrencies: privacy. Although tokens like Bitcoin and Ethereum provide anonymity, their transactions are still recorded on a public ledger visible by all. In turn, Zcash (ZEC) encrypts details surrounding the sender and receiver of the transaction, as well as the amount. These features, together with ZEC’s unique, built-from-scratch cryptographic algorithm, have granted the coin a substantial following and a promising future outlook.
- Stellar Lumens — Stellar bears many similarities to Ripple, not the least of which being that its co-founder was once a Ripple employee. Yet the coin is different in just as many regards, and equally as appealing: it features an open-source network and markets itself as an all-in-one solution for cross-border payments. Its high-profile partnership with IBM, cheap and lightning-fast transactions and elimination of middlemen to send payments globally have made Stellar Lumens a sought-after commodity.
How secure is a cryptocurrency IRA? Where is it held?
Owning an asset is one thing, but securing it is a different thing altogether. Regardless of the asset class one refers to, securing the owner’s wealth should always be the number-one priority, especially when talking retirement savings. Because cryptocurrencies are wholly digital, numerous questions regarding theft have risen since their inception. The many hacks on various exchanges that resulted in millions of dollars’ worth of cryptocurrencies being stolen have convinced us that there can be no compromises when it comes to securing our customers’ funds—and so we resort to iron-clad cryptocurrency security.
To this end, BitIRA has formed a multi-layered system of securing our customers’ cryptocurrency IRAs that absolutely guarantees the security of your retirement savings. All of the tokens set up with our solution are held and encrypted in physical multi-sig wallets (also known as hardware ledgers), which are only accessible by your explicit request.
This form of cold storage makes it impossible for the tokens to be accessed via the internet or a remote location. Furthermore, these wallets are stored in Class III vaults at a state-of-the-art depository that is guarded by armed personnel 24 hours a day, 365 days a year to shield them from physical robbery.
Besides creating a tamper-proof method of securing your cryptocurrency IRA, we’ve also acquired end-to-end insurance for the tokens we store. Should a theft somehow occur at our storage facilities or a mistake made while handling the tokens, you will be fully reimbursed. To top things off, the entire process of creating your cryptocurrency IRA has been certified through the CryptoCurrency Security Standards (CCSS) protocol, a standard of quality that provides added reassurance to crypto enthusiasts.
In short, it is by no means an exaggeration to say that the cryptocurrency IRA you’ve opened with BitIRA is the most secure retirement account you will ever have.
Who regulates cryptocurrency IRAs?
While we mentioned that cryptocurrencies, especially within an IRA, are a new concept, cryptocurrency IRAs are treated no differently than any other self-directed IRA. Although a specific set of regulations regarding crypto within an IRA doesn’t exist, the custodian of your IRA will still have to follow the same rules that any custodian of a conventional IRA (such as Fidelity or Schwab) would be subject to.
- IRS — In that sense, the IRS is the chief regulatory body when it comes to the assets held in your cryptocurrency IRA, and they are treated the same as they would be in any other retirement account. The primary way in which this is enforced here is through cryptocurrency taxation, with detailed specifics on how the different assets are regarded.
- SEC — The Securities and Exchange Commission (SEC) has taken a forward approach when it comes to regulating cryptocurrencies in order to protect investors from fraud and similar ill practices. Besides spreading awareness regarding what constitutes a solid SDIRA (the account your coins will be placed into), the SEC also has a separate office dedicated to cryptocurrencies in order to monitor development in the sector and prevent anyone from exploiting a new and thriving market.
While there aren’t any specific laws regarding cryptocurrency IRAs, that doesn’t mean we haven’t constantly strived to stay ahead of the curve when it comes to third-party oversight.
- FinCEN — Several years ago, when cryptocurrencies gained mainstream exposure, we proactively registered as a Money Services Business with FinCEN (an office with the U.S. Department of Treasury) in anticipation of potential laws regarding crypto trading in the future.
- FINRA — In July 2019, Treasury Secretary Steven Mnuchin pushed crypto companies to do the very same thing to bring greater order to the market. Aside from measures such as these, we’ve also made sure that the exchange that we use to purchase customers’ assets is regulated by both the SEC and the Financial Industry Regulatory Authority (FINRA).
Our efforts to stay above board during a time when the market was still developing have paid off. BitIRA is one of the few crypto IRA companies that can sell our solution to residents of New York, a state known for its strict regulations on cryptocurrency firms.
What are the fees for a cryptocurrency IRA account?
There are a wide range of account types you can roll over or transfer into your SDIRA, as well as several different cryptocurrencies in which you can invest. Accommodating this leads to a range of different fee scenarios, which is one reason why we provide you with dedicated one-on-one service. There is no one-size-fits-all when it comes to retirement.
But as you consider opening a cryptocurrency IRA, you’ll want to start thinking about fees. Here’s an overview of the key custodial fees when opening an IRA with BitIRA:
|Annual IRA account administration fee||$300*|
*starts here; tiered structure based on IRA value
|IRA account conversion fee||$50|
|Transfer-out or account termination fee||$300|
|Incoming and outgoing wire fee||$30|
For more details on this, call us and speak to a Specialist. Your designated Specialist will provide you with detailed fee information upfront and tailored to you. They also get to know your needs and goals, and they provide you with service to answer your questions and help you meet your goals.
Why should I pick BitIRA over the competition?
There are several other companies that offer cryptocurrency IRAs, making this a valid question. Yet, as previously stated, none of our competitors have consistently strived to go above and beyond the standard of the industry and set the bar as high as we have. Examples that illustrate our drive to offer a better solution and assure complete customer satisfaction include:
- Having a team of IRA Specialists as well as digital currency Specialists: In an effort to foster the best customer service possible, we have employed individuals with expertise in both the retirement account landscape and the crypto industry. This way, we are able to guide our customers and provide assistance, regardless of their familiarity with retirement accounts or cryptocurrencies. You need to be able to rely on the answers you get about buying a digital asset for your retirement funds.
- “The World’s Most Secure Digital Currency IRA”: Companies that offer similar products may have some form of cold storage, but none have gone to the lengths we did to guarantee the safety of our customers’ assets. This is exemplified in our solution’s use of cutting-edge security technologies such as multi-sig wallets (requiring two different persons for authorization) with keys held in different locations, as well as UL & ULC-rated vaults with multi-redundant security systems.
- Full insurance: While examining similar products, you may notice that some companies provide insurance in regard to the tokens. This, however, only covers the acquisition of the cryptocurrencies. In our case, unlike most other companies, we have fully ensured our products, which includes reimbursement in the case of theft or malpractice while the tokens are stored.
- A first-class custodian: After cryptocurrencies became eligible for placement within an IRA, we partnered with the best in the business: the Equity Trust Company (ETC) and Preferred Trust Company (PTC), two SDIRA specialists that will ensure your retirement assets are properly managed and IRS-compliant at all times. Our custodians provide an additional form of insurance on cash deposits. Depending on the custodian you are signed up with, you will be covered up to $3.75 million for Equity Trust Company and up to $250,000 for Preferred Trust Company per individual account.
- An orientation towards the future: As others focus on the here and now, we are constantly keeping an eye on both the crypto market and U.S. regulations for signs of any changes. This allows us to continue making the right choices for our customers even as the landscape shifts. In other words, once you’re in business with us, you don’t have to worry about your savings being placed in peril over regulatory oversight or a cryptocurrency that had little but empty promises behind it.
Making the right choice with BitIRA
Whether you have decided to open a cryptocurrency IRA with us, want to know more about our virtual currency product offerings or are simply interested in learning more detail regarding any of our services, don’t hesitate to reach out to us.
Our team will respond with the same quickness, attention and zeal that our long-term customers have grown accustomed to.