Miraculously enough Cryptocurrency adoption is just starting to pick up and the future for Bitcoin and blockchain technologies has never been brighter. Bitcoin is now routinely covered in the mainstream press and every month more and more fortune 500 companies are getting in on the action. The crypto genie is out of the bottle and he’s not going back in.
If you are looking to invest in Bitcoin, one of the smartest things you can do is to think of minimizing your tax liability before you invest. With big gains, comes big taxes.
With a Self-Directed IRA that doesn’t have to be the case. Tim Picciott The Liberty Advisor* can help you greatly reduce or in the case of the Roth IRA, completely avoid taxes on your potential cryptocurrency gains.
" I wish I knew as much about Bitcoin back when I first heard about it at $1, as I do now. At the time I didn’t understand the use cases outside being a virtual currency. I also thought the odds of Bitcoin breaking outside the initial cypher punk / anarchistic circles was quite slim.
Timothy Picciott CFP® CRPC®
The Liberty Advisor.
Why an IRA?
In 2014 the IRS announced they would treat Bitcoin as property which meant that Bitcoin would be subject to Capital Gains taxes. In the case of Short term capital gains… which results from the sale of an asset held less than 1 year the tax is the same as your income tax rate. For Crypto assets that have been held more than 1 year the long term capital gain rate could be as high as 23.8%.
Make sure you see our interview with a Bitcoin Tax Expert
The Good News:
Bitcoin and almost all cryptocurrencies can be purchased using a self-directed IRA! This means you can buy and sell Bitcoin and other crypto-assets without triggering capital gains every time you reallocate your holdings!
In the case of the Roth IRA, you can even withdraw funds tax-free*.
*Individuals who’ve reached 59 ½ can withdraw funds from Roth IRA’s without incurring an additional tax liability. There are also exemptions such as first time home purchase and certain leeway once your account is older than 5 years old that you will want to ask your tax professional about and/ or consult with the most recent IRS guidelines.
If someone had invested $5,000 into Bitcoin using a self-directed Roth IRA on June 25th, 2013 they would’ve been able to purchase 48.22 Bitcoins at a price of $103.69 per Bitcoin. [Source: Coinmarketcap.com]
As of June 25, 2019, the price of Bitcoin was trading at $11,393 which meant their hypothetical account value would’ve grown tax-free to $549,420. This represents a tax-free gain of $544,420!!! Now, do you see the power of the Roth IRA?
Sign up for our guide and receive Tim Picciott’s Roth IRA conversion Strategy as a special thank you.
How Does a Self Directed IRA Work?
-Investor establishes a unique type of LLC that is owned by their IRA / Roth / 401(k).
-After establishing an exchange account and corporate bank account that is owned by the LLC the LLC manager (i.e. the investor) can then invest into Cryptocurrencies and Bitcoin using their IRA or other retirement vehicles.
The above example is a gross over simplification of how one goes about investing Crypto within their retirement account. One should only set up a self directed IRA LLC after working with an experienced lawyer who has knowledge of crypto currencies and self directed IRA’s.
Sign up for our Crypto IRA Survival Kit and learn the 9 biggest mistakes Self-Directed IRA investors make along with the top 5 mistakes crypto investors make and our top 10 questions Crypto Self Directed IRA investors have.
Diversify your Crypto Holdings without triggering capital gains!
In the example above our Crypto, early adopter has massive Bitcoin profits. If our investor wanted to diversify his crypto holdings into other cryptos such as Monero, Bitcoin Cash, Dash, Litecoin, Z Cash, and Ethereum to name a few. You can also diversify into traditional assets such as stocks and bonds without triggering capital gains!
Bitcoin has been the best performing asset of the past decade and has far outperformed the S&P 500.
During the most recent 5 year time period ending on July 1 2019. The S&P 500 gained 50.66% while Bitcoin returned a stunning 1613.21%!
While past performance is not an indication of future returns, it’s important to recognize that the best-performing asset despite relatively few people having had exposure to it during the epic 2017 run up. As the other half of the planet gears up to come online, crypto assets could be a major disrupter… especially in the 3rd world.
Monetary & Geo-Political Hedge
In 2008 Central Banks around the world printed trillions of dollars to “save” the financial system. For years the Federal Reserve was adamant that it could normalize its balance sheet and increase interest rates. For years mainstream economist believed them and thought they could pull it off.
Now, 11 years later and the market is signaling a near 80% chance the FED cuts rates next time they meet in July of 2019.
Jay Powell, the Chairman of the Federal Reserve recently stated “Perhaps it is time to retire the term ‘unconventional’ when referring to tools that were used in the crisis. As of this writing there is over 12 trillion dollars in negative interest rate bonds.
As central banks prepare to print trillions more currency units to keep interest rates artificially low, cryptocurrencies could be a great potential hedge against central bank policy failures.
In a world where we are one tweet away from trade deals blowing up or actual bombs going off, Bitcoin may also be a great hedge for geo political risk… especially for third world countries whose corruption is even more overt than it is here.
With so many unknowns… Bitcoin provides a potential monetary and geo political hedge against out of control central banks and politicians who are hell bent on printing untold trillions of dollars to “save” the system.
For a video on how Central Banking actually works, I’d recommend this video we made a few years ago.
As crazy as it sounds, adding Bitcoin to your portfolio can actually lower your portfolio’s volatility! There is a counter-intuitive concept whereby one can add volatile assets to a portfolio and have a portfolio that is less volatile than a portfolio without the volatile asset. This is because the underlying assets are either negatively correlated or have very low correlation to each other.
Just because something isn’t correlated doesn’t mean it’s a good investment and like any investment, you should KNOW what you are investing in before you commit to making an investment.
Notice how I said adding Bitcoin to your portfolio could lower your portfolio’s volatile and I didn’t suggest or say Bitcoin itself wasn’t volatile.
Tom Lee of Fundstrat has some a lot of research in this area and you can check out a video I made on this subject here.
Real Life Use Cases
Bitcoin and other crypto assets have a vast potential to reshape much of the world we live in. When it comes to the financial world, there is a possibility traditional assets such as stock and bonds could be tokenized and traded via the blockchain. Doing so would allow for instant trading, settlement and a massive reduction in fees and accounting paperwork.
Tim Picciott, The Liberty Advisor has recorder over 30 episodes of his show dedicated to Cryptocurrencies called the Crypto Wealth Show. We’d recommend checking out several of them to get an idea of how crypto has the potential to change the world. When it comes to Tokenized Asset we’d particularly recommend watching:
Walmart has also recently announced its gone to the blockchain and it's not what you might expect. Walmart is mandating its produce suppliers utilize the blockchain to help prevent food outbreaks. For instance,… If Walmart has contaminated lettuce hit their shelves they’ve traditionally had to dispose of all their lettuce nationwide. By utilizing the blockchain Walmart has the ability to pinpoint the exact outbreak of the contaminated produce, which could save tons and tons of food …literally…from needlessly being thrown away.
These are just two small possibilities and other areas that have the potential to be disrupted: title agencies, voting, Debt Issuance, Stock Issuance, the underlying framework of the internet, transparency in government and of course as a money transfer mechanism.
Major players getting in on the action
- Yale raising $400 million to invest in a crypto fund
- Facebook spearheading Project Libra with up to 100 other large institutions paying $10 Million each to be a node.
- Confirmed Libra Alliance: MasterCard, PayPal, PayU, Stripe, Visa, Booking Holdings, eBay, Calibra, Farfetch, Lyft, Mercado Pago, Spotify, Uber, Vodafone, Iliad, Anchorage, Coinbase, Bison Trails, Anchorage, Xapo, Andreessen Horowitz, Breakthrough initiatives, Ribbit Capital, Thrive Capital, USV
-Confirmed Enterprise Ethereum Alliance: Accenture, AMD, BBVA, Bank NY Mellon, Citi Ventures, Cognizant, Cisco Systems, Deloitte, Docusign, Depository Trust and Clearing Corporation (DTCC), Ernst & Young, Fujitsu, Facepay, First National Bank of Omaha, Intel, JP Morgan Chase, John Hancock, Microsoft, PricewaterhouseCoopers LLP, Rutgers University, ScotiaBank and VMware to name a few.
Forbes list of largest marketcap companies investing in Blockchain technology
- JP Morgan Chase
- Industrial and Commercial Bank of China
- China Construction Bank
- Bank of China
- Bank of America
- Wells Fargo
- Royal Dutch Shell
- Toyota, Samsung, BNP Paribas, Microsoft, Starbucks, Allianz, Alphabet (google), Walmart,
- Daimler, Banco Santander, AXA, Comcast, Mitsubishi, Anheuser-Busch InBev, RBC, Pfizer,
- Nestle, Intel, Morgan Stanley, Siemens, Amazon.com, ING, Goldman Sachs,
- Intercontinental Exchange (ICE) Owners of the NYSE
- Prudential, Ford, IBM, Walt Disney, MetLife, Alibaba, AIA Group, Tencent Holdings, Oracle,
- BHP Billiton, Mizuho Financial Group, American Express
Should I cash out my 401(K) or IRA to invest in Bitcoin?
The following Hypothetical scenario details what would’ve happened to an investor who “cashed out” $100,000 out of their 401(k) on January 1st, 2017, vs an investor who chooses to roll their funds into an IRA or Roth IRA*.
(*Assumptions: An investor purchased $100,000 of bitcoin January 1st, 2017 at $1000 per coin. On January 1st, 2018 the value of Bitcoin was $13,791. 25% withheld for taxes and 10% penalty. Management fee, Custodial fee, & account set up fees not taken into consideration. This also does not account for any Forks. A potential investor should read our fairly comprehensive list of disclosures before investing in Bitcoin.)
“Cash out” Value 1 year later = $896,415 All gains taxable
Roth IRA Conversion using a Self-Directed IRA = $1,034,325 (All gains in a ROTH are TAX-FREE!!!)
IRA Rollover using Innovative Advisory Group= $1,379,100 (All Gains are TAX DEFERRED)
An Investor who has executed a Roth Conversion would’ve had 10% more Bitcoin by avoiding a 10% penalty*. One must consult with a tax professional to explore the most efficient ways to perform a Roth conversion. A 10% penalty may apply to conversions where proper planning and execution weren’t followed.
The investor who simply wanted to “Cash out” their 401(k) or IRA would’ve had $137,910 less than the investor that moved funds into the Roth IRA! If the cash-out investor wanted to diversify out of Bitcoin they would also face capital gains tax whereas the Roth IRA investor would not be subject to capital gains tax while diversifying and no tax upon withdrawing after the age of 59 1/2 years old.
One should always consult with a financial professional before any investment or withdrawal decision.
The Investor who performed a rollover would’ve had nearly $500k more Bitcoins than the investor who cashed out. This $482,685 deferred additional gain could also be sold within the IRA and not trigger capital gains. The investor would be subject to income taxation upon withdrawal but one should not underestimate the power of tax deferral.
The decision to have a self-directed IRA or Roth IRA is one you will need to consult with your financial professional to explore which one makes more sense.
By accessing our Crypto Ira Survival Guide you will receive the following:
-10 Most Important Factors you should consider when investing into a crypto currency.
-10 Most Common Questions Investors have regarding Crypto and your IRA.
-6 Biggest Mistakes Crypto Investors Make
-Our Crypto Roth Conversion Presentation
-9 common Mistakes Investors Make Using a Self-Directed IRA
-75 Alternative Investments you can make with your Self-Directed IRA outside the stock market
The tips, tricks and knowledge contained in these reports and videos is invaluable to have for any investor considering using their IRA to invest into Crypto or for anyone looking to use a Self-Directed IRA.
Whatever you do. Do NOT cash our your IRA or 401(k) to purchase Bitcoin. You may be costing your retirement hundreds of thousands of dollars!
Financial Services and Investment Advice Provided through Innovative Advisory Group, LLC.
Before Investing in Crypto Currencies, one should know the numerous risks involved in Cryptocurrencies, not the least of which is a potential complete loss of principal. For a list of risks and disclosures please click here.
Disclosure: Both The Liberty Advisor and Innovative Advisory Group, LLC does not render financial advice via this website. All information is for informational purposes only. Any mention of 3rd party sources is believed to be accurate but cannot be made certain that is the case. One should consult with a financial professional before acting on any information.
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