Research has shown the several risks involved with putting all your retirement savings into bitcoin. In the month of March, 2017, the value of bitcoin was $1000 per one bitcoin. Towards the end of year, it traded at $19,000 per coin. Bitcoin is currently trading at $11,000 and is still subject to more fluctuation and volatility.
Some people are speculating that by the year 2050, bitcoin will worth more value than it is today.
Lisa Gray, a 42-year-old mother of two when asked why she is investing in bitcoin said that she doesn’t want to be a loser in the future. This is not the case with her alone, but with so many others.
But the question is, how secured is investing in bitcoin IRA?
Note that Bitcoin IRA implies people having their Individual Retirement Account funded with bitcoin.
In a normal retirement account, the holder’s investments are restricted to bonds, money market funds and stocks. You cannot go to your bank and request that a bitcoin should be added to your IRA.
Therefore, to invest into cryptocurrencies with your retirement savings, you will be given what is referred to as “self-directed” account, which will give you the flexibility to fill it with any form of investments excluding personal properties, life insurance and collectibles. A Google search will bring out whole lots of advertisers offering this service.
You can choose to maintain other accounts for your retirement savings or only pursue the self-directed account which allows investment into cryptocurrencies. There are retirement custodians that will help effectively manage the account. Custodians like Kingdom Trust in Murray, Kentucky will protect your investment which has made cryptocurrency appear like alternative investments.
It is very important that you know the cost of operating this alternative investment. This is because they are aware that you cannot get it anywhere else. For instance, Kingdom Trust charge a monthly fee of $20 and a holding fee of 0.07% on the account balance. There are also extra charges which are asset purchase fee and opening charge, in addition to the fee of $100 charged to transfer the funds out.
Comparing this with the conventional IRA accounts, which come with no opening or annual charge. They only charge a little fee when there is a transaction of buying or selling of an investment.
The custodians that manager your self-directed accounts do not owe you any fiduciary responsibility. It is to your best interest to determine which investment will work well for you, and to ensure you didn’t contribute more that the contribution boundary for IRA.
To make things worse, to include cryptocurrencies as part of your alternative investments, the custodians will first demand that you get the service of another company who will buy the bitcoin on your behalf.
Some firms that render this type of services are BitIRA and Bitcoin IRA. Their service charge is 15% of your total investment as at the time you were opening the account. And when you finally decide to move your money back to cash from cryptocurrencies, you will be billed for “liquidity fee”. The reason you are buying through these companies is to abide by the retirement account rules.
What then is the benefit of investing in cryptocurrencies for your IRA?
The Internal Revenue Service sees cryptocurrencies as a property. That means that they are actually taxed at the capital gains rate for you whether long-term or short-term. So, investing into virtual currencies for your retirement savings in Individual Retirement Account could potentially avert taxes for you. There are chances that you might as well make it big without sharing the profit with the government.