Cryptocurrencies have recently made headlines, as an alternative asset offering the promise of high returns with minimal transaction costs.
As with any investment, cryptocurrency requires thorough research and due diligence before diving into it. You’ll need a self-directed IRA custodian who permits purchasing cryptocurrency as well as alternative assets.
What is a self-directed IRA?
Self-directed IRAs (SDIRAs) provide you with more control in investing assets not typically accessible through traditional or Roth IRAs, including real estate, precious metals and cryptocurrency investments. Like regular IRAs (tax-deferred growth and withdrawals at retirement), SDIRAs provide tax deferral benefits as they offer tax-free growth. But you must follow guidelines set by the IRS in order to avoid running afoul of prohibited transactions.
Investors looking to broaden their retirement portfolio beyond stock market investing can use a Self-Directed Individual Retirement Account (SDIRA) to hold alternative assets like cryptocurrency, real estate and private equity. In order to do this successfully however, you’ll need a reliable self-directed IRA administration firm as well as perform due diligence before buying or selling any cryptocurrency assets.
What are the benefits of a self-directed IRA?
Self-Directed IRAs give investors more options when it comes to investing in alternative assets like cryptocurrency compared to traditional retirement accounts, including stocks, bonds, mutual funds and real estate. Many investors now choose SDIRAs because of this feature.
Though investing in a self-directed IRA requires additional work and risk than traditional investments, having the right custodian can make the process simpler. They will handle everything from account onboarding to finding investments for you as well as offering resources to combat fraud in the industry.
As for purchasing cryptocurrency within an SDIRA, the IRS has issued clear guidance as to which transactions are prohibited. As there is currently no dual signature wallet that gives them comfort around personal possession of cryptos, precious metals and traditional assets may be better options until this wallet becomes available. Furthermore, any funds transferred from an employer-sponsored retirement plan, like 401(k), typically must wait until after age 591/2 before withdrawing them without incurring taxes and penalties.
What are the risks of a self-directed IRA?
Self-directed IRAs allow you to invest in alternative assets, such as cryptocurrency, private equity, real estate or physical gold – offering greater diversification for your retirement portfolio and protecting you against market downturns or inflation eating away at your life savings.
Self-directed IRA investments may be riskier than stocks and bonds, necessitating more research. Furthermore, custodians don’t assess or screen these assets before placing them into your IRA – it is up to you as the investor to ensure it is safe and legit.
When investing in cryptocurrency with a self-directed IRA, work with an experienced provider that offers personalized investing experience tailored to your needs. Review reviews and complaint histories before selecting one to ensure you’re getting maximum value and service for your money.
How can I invest in a self-directed IRA?
If you want to invest in cryptocurrency through an IRA, there are a few options available to you. There are cryptocurrency IRA providers founded by precious metal dealers that provide custodial and investment services; these platforms usually charge higher trading commissions as well as fees for storage space.
An alternative option for self-directed IRA accounts is opening them with an intermediary, like Equity Trust or IRA Financial. They serve as neutral parties that enable you to invest in alternative assets – including cryptocurrency – without being personally accountable. You are ultimately responsible for verifying investments and avoiding prohibited transactions.
Self-directed IRAs enable you to develop a portfolio that suits both short- and long-term financial goals. Just make sure that you conduct adequate research and work with a reliable partner; cryptocurrency investments may be highly speculative and unpredictable; therefore it is wise only to invest funds that you can afford to lose.
