CSD Investor Guide

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Abstract:

For many Americans, the only funds they have available to invest are those that are in their retirement accounts. Over the past year, we’ve heard dozens of stories where people made the decision to cash out their 401(k)’s to purchase bitcoin and other cryptocurrencies.

While this certainly proved to be a smart monetary move in hindsight, could they have done something better?

In this paper, we compare various strategies involving retirement funds and cryptocurrencies. One strategy involves “cashing out” their 401(k) as described above. The other strategies contrast hypothetical scenarios where their funds are rolled over to an IRA or a Roth IRA instead.

I also examine what this would look like using the most popular service in the space versus using our own method.

For a better idea of the differences between an IRA and a Roth IRA, please see this video I made a few years ago.

Who We Are:

Crypto Self Direct is a service of Tim Picciott CFP® CRPC.   Tim is an experienced wealth advisor with Innovative Advisory Group®, a Registered Investment Advisory who specializes in Self-directed IRA, Alternative Investments and protected growth strategies.

 Tim Picciott CFP® CRPC® was an active figure in the Ron Paul R3volution and goes by the moniker “The Liberty Advisor”. At just 25-years-old, Tim became one of the youngest advisors to obtain CERTIFIED FINANCIAL PLANNER™ designation. The CFP® mark is widely considered to be the gold standard among financial planners due to the extensive amount of work it takes to both obtain and maintain the credential. 

With nearly ten years of experience as an independent wealth advisor, Tim has an extensive amount of traditional financial planning knowledge to go along with his expertise on cryptocurrencies.

While studying for the CFP® exam, Tim read G. Edward Griffin’s The Creature from Jekyll Island. It’s interesting to note that Edward Griffin obtained his CFP® designation in 1989 in preparation for writing the timeless classic.

Foreseeing the inevitable collapse of the Federal Reserve and the worldwide monetary system,

Tim’s was naïve enough to look for a political solution focused on the rallying cries of “Audit the Fed” and “End the Fed”. After becoming increasingly frustrated with the political landscape, Tim shifted his focus from politics to cryptocurrencies as a potential hedge against centralized Fiat. 

For a brief overview of why Tim thinks the current financial system is a fraud, please check out

“We are all slaves to central bankers.”


Why Crypto Self-Direct:


In September 2017, we became very frustrated that we were able to offer every financial product under the sun – except for bitcoin. We could offer our clients bitcoin and ethereum through Unit Investment Trusts or UITs, but once we looked a little further into them we didn’t feel comfortable recommending them. There are several reasons for that, the first of which is that we didn’t want to have to trust a financial institution with our private keys. The second reason was that UITs often trade at huge premium to their net asset value or NAV.

In layman’s terms, if the premium over NAV was 100% and the price of Bitcoin was $10,000, it meant you were actually paying $20,000 to own Bitcoin. With the introduction of futures, these spreads have narrowed, but you don’t actually own your private keys and the fee is upwards of 2% per year.

The next method we looked into was having a custodian maintain a digital wallet for us.

Due to high fees (10-15% depending on account size) and the legality (this method is entirely unproven in a court of law), we chose to follow another route. Please note that we are not making any judgements on the legality of this method, and we hope it’s proved to be legal, but we don’t want our clients to be the guinea pigs.**

Fast forward to November 2017, when Wall Street was set to launch Bitcoin Futures. For us, this was only a viable option for people who wanted to buy insurance for large holdings. Knowing Wall Street, we highly doubt most traders are buying this to hedge their long bitcoin positions. The other problem is that their Bitcoin Futures settled in cash, which once again meant there were no private keys for the end user to hold or HODL (crypto slang for “hold on for dear life”). In a true panic or collapse of the monetary system, one would want to HODL their crypto and not Federal Reserve Notes (FRNs).

We finally started looking into the world of self-directed IRAs (SDIRAs) and were able to team up with Innovative Advisory Group who specialized in alternative investments and SDIRAs. Many of the people they “compete” against are unlicensed, unregulated and unaccountable to you after the sale.  The Liberty Advisor was formed by a Certified Financial Planner™ who spent years crafting his wealth management expertise in all areas of personal finance.

Another key difference is that we want to clearly lay out the inherent risks of investing in bitcoin and other cryptocurrencies. We won’t invest your money unless we feel that you’re well aware of these risks. Many of our competitors say with absolute certainty that bitcoin will hit $1 million in the very near future and use FOMO (fear of missing out) as a sales tactic. In the crypto world this is known as FUD (fear, uncertainty and doubt).

If you’re 55 years old, don’t expect us to throw 50% of your net worth into cryptocurrencies. Ideally, we want all of our clients to have a plan in place before they invest, even if the plan isn’t formal. If you know you need $75k to live on, we’ll advise you on how you can obtain that income and use excess funds to: invest more aggressively and hedge against inflation.

​Why you should choose Crypto Self-Direct:​

1.. We do not charge 10-15% upfront.

2. Our fee includes the funding.

3. We’re fiduciaries, which means we’re obligated to act in your best interests and not ours.

4. We give you the ability to take a holistic approach to your wealth and to manage your other assets all under one roof.

5. By investing in an SDIRA, you’re able to invest in virtually anything, with a few exceptions.

6. Flexibility in the storing of private keys

7. More Crypto Asset Options than our competitors. 

8. You can choose which exchange to purchase from.

9. We make sure that you know the differences between a cold wallet and a hot wallet and teach you the best ways to protect your crypto.

10. We provide service after the sale.

11. We’re fully licensed and have a track record of client accountability.

12. You’ll own actual bitcoin/crypto and not a derivative.

13. You’ll be investing with philosophical libertarians.

Disclaimers:

 ​

DISCLAIMER: PLEASE NOTE THAT ALL SCENARIOS ARE STRICTLY HYPOTHETICAL. INVESTING IN CRYPTOCURRENCIES IS EXTREMELY RISKY AND YOU SHOULD READ OUR FULL LIST OF POTENTIAL DISCLOSURES AT THE END OF THIS DOCUMENT BEFORE YOU CONSIDER INVESTING. PAST PERFORMANCE IS NO INDICATION OF FUTURE RETURNS AND THESE ASSETS COULD DROP TO ZERO. AS A MATTER OF FACT, WE THINK MANY CRYPTOS WILL DROP CLOSE TO ZERO AS PEOPLE SPECULATE ON NEW INITIAL COIN OFFERINGS. HYPOTHETICAL EXAMPLES DO NOT CONSIDER THE FOLLOW FEES: CUSTODIAL FEES, ACAT FEES, WIRE FEES, ACCOUNT CLOSING FEES, CONTINGENT DEFERRED SALES CHARGES AND ANY OTHER FEES THAT YOUR CURRENT FINANCIAL INSTITUTION OR CUSTODIAN MAY CHARGE YOU FOR MOVING FUNDS.

*Please refer to Fee Comparison Disclosures and general disclosures before making any decision.


The Power of Tax-Free/Deferred Investing

We’ll take a look at the power of both tax-free and deferred investing in a moment, but first let’s take a look at a cashing out example.

Cashing out your 401(k) – an example:

Bob Smith is 45-years-old. He cashed  $100,000 out of his 401(k) to purchase bitcoin on January 1st 2017 at $1,000 per bitcoin.

After taking into account a 25% federal tax withholding and a 10% penalty, Bob was left with $65,000 to invest which meant he was able to buy 65 bitcoins.

One year later, on January 1st 2018, the price of bitcoin was $13,791. Assuming there are no commissions, Bob’s bitcoins are now worth $896,415. Please note this is all a taxable gain!

 

If Bob were then to diversify his assets, even into other cryptocurrencies, he’d be hit with either a short or long term capital gains tax depending upon whether he held his crypto for more than one year. In essence, the tax ramifications are forcing Bob to HODL whether he wants to or not.

 

*Please refer to Fee Comparison Disclosures and general disclosures before making any decision.

Example of converting to a Roth using CSD:

If Bob had converted his IRA or 401(k) into a Roth, he would still have to pay the tax, but he would avoid the 10% penalty. After paying taxes, Bob would be left with $75,000. Taking into account the Crypto Self-Direct (CSD) annual management fee, Bob’s account would be worth $1,033,088

Bob would have the equivalent of $136,673 more than if he’d cashed out his 401(k). Better yet, the gains would have been tax   free!*

*Please refer to Fee Comparison Disclosures and general disclosures before making any decision.

Example of converting to a Roth using a competitor:

If Bob took his $75,000 and used our leading competitor’s fee of 12.5% or $9,375, Bob would have $65,625 left to invest in bitcoin, which leaves him with 65.625 bitcoin. In this example, Bob would have $905,034 worth of bitcoin by January 1st 2018.

If he’d used CSD instead, he’d have access to licensed fiduciaries who are retirement/cryptocurrency experts, as well as his own IRA LLC. More importantly, though, he would also have had an extra $128,054 worth of bitcoin as expressed in FRNs after one year.

*Please refer to Fee Comparison Disclosures and general disclosures before making any decision.



Example of an IRA Rollover using CSD:

Since Bob is engaging in an IRA rollover, there are no taxes or penalties applied to his move.*

This means Bob’s Crypto IRA  would have been valued at $1,377,450 FRN’s one year later*

*Please refer to Fee Comparison Disclosures and general disclosures before making any decision.



Example of an IRA Rollover using the competition:

The competition charges 10% for $100,000 accounts, which leaves Bob with $90,000 to invest. This means he can secure 90 bitcoin worth $1,241,190 as of January 1st 2018.

If he’d used CSD instead, his account value expressed in FRNs would’ve been $136 ,260 than the leading competitors – after only one year!

*Please refer to Fee Comparison Disclosures and general disclosures before making any decision.



So why Roth?

Please note that the following scenarios are strictly hypothetical and are not indicative of or guarantees of future returns.

Even though Bob accumulated more bitcoin in his IRA account, that amount is taxable income to Bob and his heirs. If Bob was at least 59.5 years old and wanted to cash everything out, he would pay roughly 40% in taxes. Using the CSD IRA example, Bob would be left with $826470. Now the odds of someone cashing out their entire 401(k) at once are slim to none, and it would be highly inadvisable for tax reasons. This example is only used to demonstrate the power of tax free and tax deferred growth. This is a hypothetical top marginal rate and does not include any state taxes, Medicare surcharge taxes or any other extortion schemes devised by the US government.

Conversely, Bob’s Roth IRA was invested using post-tax money. This means that his $1,033,088 would actually be $1,033,088 because the gains were tax-free!

What if bitcoin hits $1 million USD?

Many prominent people in the crypto world think that bitcoin will reach $1 million per coin. We’re not making any such claims or guarantees, but it’s interesting food for thought.

Hypothetically speaking, let’s assume that the price of bitcoin hit $1,000,000 when Bob turned 60 years old. Using CSD to initiate a Roth IRA rollover $64,108,227.

Using CSD for an IRA rollover and assuming Bob paid the highest fee possible the entire time (in actuality his fee would be much lower) Bob’s Ira would be valued at $85,477,636.

After paying a tax of 40%, Bob’s actual spending power would be $51,286,581 or $12,821,646 FRNs less than if he chose the Roth option.

If this situation did occur, it would be wise for Bob to look into crypto estate planning.

*Assumes Bob started investing when Bitcoin was $1000 per Bitcoin and that net of fee’s he averaged 56.84% for 15 years.  Assumes Bob paid the highest fee possible the entire time which is 1.65% for Separately Managed Accounts (in actuality his fee would be much lower due to breakpoints).

The Process:

  • Consultation with one of our Financial Planners
  • Open Account with one of our alternative asset custodians and potentially TD Ameritrade depending on services needed.
  • Set up call to roll funds into the custodian.  This process varies from 401(k) to 401(K) but is generally pretty standard for IRA’s.
  • Establish an IRA LLC ( Unless you already have one)
  • Open an account at an exchange using your newly created SDIRA entity.
  • Purchase the crypto from the cash within your SDIRA
  • Establish  a separate Cold Storage wallet that is a preferably multi-signature


  • FAQ  Frequently Asked Questions:

    • Can I have other assets within my Self Directed IRA?
      ​ YES.  Whether its rental property, Private mortgages, Tax Liens or Hard money lending to name a few.  We have a wide variety of alternative investments that can be held in your SDIRA in addition to alternative investments that you bring to us.
    • Can you manage my traditional assets?
      YES.  We have protected growth strategies that help minimize your downside risk while allowing complete liquidity and unlimited upside.
    • What are your minimums?
      Generally speaking Self Directed IRA’s do not make sense for investors with less than $50,000.  However there are other methods to gain crypto exposure for far less.  $5000 is our absolute minimum. To work directly with Tim Picciott as part of his Private Client Group, the minimum investment is $2.5 Million or $25,000 retainer.
    • What are your fee’s?
      0—100,000 --------1.99%        $500,001- $1M --- 1.25
      100,001-$500,000  1.5%         $1M + ----------------1%
      These are annual fee’s which are charged quarterly in advance.  i.e. If someone had $600,000 with us they would pay 1.25% of $600,000 divided by 4 or $1875 per quarter.
    • How much does the IRA LLC set up cost?
      This varies lawyer by lawyer but is generally in the $800-$1200 range.  You are not required to use a lawyer we recommend and we receive no compensation from this.
    • Should I have a Roth or an IRA?
      That depends on many factors and would best be handled by speaking with one of our representatives.
    • Can you invest using a self-directed 401(K)?
      Yes.  There are benefits as well as complications involved with this.   For larger companies there are many factors to consider.  For smaller or sole member companes, this is much easier. The main benefit is the amount you can Invest per year.  For instance someone with a solo 401(K) can invest upwards of $55,000 per year or $61,000 if they are over the age of 50.  Contrast this to an IRA which has limits of $5,500 and !0,500 respectively.
    • Can you invest into Alt Coins?
      Yes
    • Can you invest into ICO’s (Initial Coin Offerings)?
      No.  ICO’s are currently banned in America. However Security tokens are starting to come on the scene and those that are properly registered can qualify for the SDIRA.

    IN CONCLUSION:

    We hope that you see the value in having your crypto grow tax-free (Roth IRA) or tax-deferred 

    (traditional IRA). In both cases, you’re better off financially using a rollover (if you’re trying to be above board and pay all of your taxes) than if you simply “cash out” your 401(k).

    Please schedule a free fifteen minute consultation to get a better idea of which method is best for your personal financial situation and let one of our crypto specialists help you “Crypto Your Retirement”!