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 financial planning around your crypto investments.
With a Self-Directed IRA, one has the potential to defer, 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 understand why people think its just fake money being traded back and fourth but the real world use cases are plentiful ''
Timothy Picciott CFP® CRPC®
The Liberty Advisor.
Why an IRA?
For many Americans, the only money they have to invest is within their retirement accounts.
IRA's have the potential to defer taxes until they are withdrawn or (in the case of the Roth IRA) grow retirement funds tax free.
In 2016 I became aware of people withdrawing funds from their retirement accounts to invest into Bitcoin.
Worse yet.... all of these individuals were under 59 1/2 and had to pay a 10% penalty on top of income taxes.
I knew there had to be a better way and that better way is is utilizing a Self Directed IRA. To get a better idea of the financial benefits please see the video below and the section entitled: Should I cash out my 401(K) or IRA to invest into Bitcoin?
In 2014 the IRS announced they would treat Bitcoin as property which meant that Bitcoin would be subject to Capital Gains taxes. *Applies to investments outside of retirement accounts.
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.
In the case of the Roth IRA, you can even withdraw funds tax-free*.
Sign up for our free guide and receive Tim Picciott’s Roth IRA conversion Strategy as a special thank you.
*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 other one off scenario's. In any event ,you will want to consult with your tax professional as well as the most recent IRS guidelines before you make any tax related decisions.
Sign up for our Crypto Self-Directed IRA Kit and receive Important Information on:-The 9 biggest mistakes Self-Directed IRA investors make - Top 10 questions Self Directed IRA investors have about investing into Crypto
Within your IRA, One Can Diversify their Crypto Holdings without triggering capital gains!**
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 FED is reneging on selling assets off its balance sheet and is actually increasing its balance sheet!
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 17 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 the economy 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 in the United States.
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.
With that said Bitcoin may still go down in a financial crisis and a patient investor may have to wait until the central banks response to the crisis for this hedge to pan out. Ultimately no one has a crystal ball in regards to Bitcoin but one doesn't need a crystal ball to realize the current monetary system is unsustainable.
As crazy as it sounds, adding Bitcoin to your portfolio may 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 said 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.
**Please note that since Bitcoin is such a new asset class, that any conclusions about correlations may be premature to make at this time.
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: PayU, 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 into Bitcoin?
This Simple answer is a resounding NO!!!!
Back in 2016 I became aware of people withdrawing funds from their retirement accounts to invest into Bitcoin. All of the individuals that I personally knew all had to pay a 10% penalty for withdrawing their funds before they turned 59 1/2.
I was cringing.... Firstly because it was a very risky move and secondly because these people all hated the government yet paid the government a 10% penalty on top of income taxes owed. For the person that is contemplating "cashing out" their retirement savings here is a scenario to ponder.
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 choose 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 a SDIRA= $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 as expressed in US Dollars 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.
**refers to Crypto that was already purchased within an IRA. Does not apply to your existing Crypto held outside your IRA.
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.
© 2019 thelibertyadvisor.com | All Rights Reserved