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Should You Invest in a Cryptocurrency Retirement Plan?

invest in Cryptocurrency Retirment Plan

This is a guest post submitted on CryptoTapas.

As our industry evolves and changes the job market changes along with it. While consistent technological advancements usually come with a ton of good, it has also brought as to a point of living in the age of increased uncertainty. Entire professions are dying out and certain technical skills are becoming obsolete.

As the years go by, the concept of job security is fading away slowly which has led to some drastic changes in the way we think about our careers. Modern professionals have more freedom but that freedom comes with a side of fresh responsibilities and difficult choices to make.

In a world of changes and uncertainty, developing a sense of financial security has become an increasingly difficult task. So if we’re losing all of these assurances about our work life, what does that mean for the ways we save for a time after our careers have ended?

How to Retire In This Day and Age?

The increase in average life expectancy has made the task of setting aside sufficient income for retirement more challenging and people are not getting ready. A recent survey has shown that only 10% of the people in the US have a formal retirement plan set up and the idea of working after your statutory retirement age is becoming a real strategy for many.

how to invest in cryptocurrencyThose seeking security have shifted the discussion from retirement to financial independence which is changing the focus from age to finances. Even though it’s not easily obtained, the key benefit is that with it comes a belief that you are the one who is in charge of your finances throughout your whole life. Thinking about financial independence is an inherently active approach.

Those who are trying to achieve financial independence usually have a better understanding of their finances. They are probably more likely to stay up with the current trends in the business world and one of the biggest current trends is, of course, cryptocurrency.

In recent years, cryptocurrency has become a dominant topic all over the world, consistently raising more and more attention from potential investors. No one knows what the future will bring for sure yet many believe that we’re still in the early stages of the cryptocurrency era. But could it be a strong asset to your retirement plan?

3 Ways of Developing a Retirement Plan That Includes Cryptocurrency

ways to invest in cryptocurrencyThere are several ways to incorporate cryptocurrencies into your overall retirement plan and strategy. One of the easiest and most common ways is to create a self-directed IRA.

An SDIRA is a specific type of individual retirement account provided by trustees or custodians. It allows you to hold various investments within your account. Things like stocks, gold, real estate and more importantly, digital currency.

Self-directed IRAs that can hold cryptocurrency are also known as Cryptocurrency or Digital IRAs. A key distinction between a self-directed and a traditional IRA is that an SDIRA is managed by the account holder. This will help you gain greater control over your finances and future, but it does come with some extra responsibilities.

If all of this sounds like a whole lot of work to you, there are simpler ways of approaching the matter. There is an increasing number of companies that specialize in combining cryptocurrencies with your individual retirement accounts. Even though this would make the process a lot easier, it does come with additional fees.

Lastly, there’s always an option of investing in crypto as a way of saving money but without merging it with your official retirement plan. It might be less of a hassle but you will miss out on the tax benefits. Even though we consider it digital currency, the IRS still treats crypto as property which is why you should learn about crypto taxes if you plan on taking this route.

The Upsides 

  • It’s a Way of Diversifying Your Portfolio

crypto portfolioDiversifying your investments is one of the key principles of low-risk financial management and the same goes for your retirement plans. Along with things such as real estate investment and creating multiple streams of passive income, investing in cryptocurrency can be a great angle for your diversification strategy.

There have been some success stories in recent history where people went with the cryptocurrency retirement plan and came up on top. In 2017, a physicist who educated himself on the topic of virtual currencies via YouTube invested 15% of his retirement fund and ended up increasing his value nine times. Success stories like this one can make people get very excited but financial advisors still recommend that you should be careful with your investments and make sure to keep them between 5 and 20%.

  • It Allows Tax-Free Growth of Your Cryptocurrency Investments

If you’ve decided to take the route of opening up a Digital IRA then your investments in Bitcoin or any other cryptocurrency will grow completely tax-free. As long as you keep these funds within your account, you are not required to pay any tax fees on them. The only way these funds will become a subject of taxation is when you decide to make a distribution.

  • It Operates Under a Decentralized Infrastructure 

One of the main advantages of cryptocurrency retirement savings is that you’re investing in a decentralized infrastructure. Being a part of a system that is independent of centralized institutions comes with the advantages of being unaffected by the actions of central banks and governments.

This is a great benefit because it keeps your investment safe in cases such as bank failures. One of the main reasons for creating a blockchain-based, decentralized cryptocurrency is so that people could avoid being impacted by events similar to the 2008 financial crisis.

Another thing cryptocurrency can save you from is the effects of inflation, in case you’re investing in those that have a hard cap. Bitcoin’s is set at 21 million dollars, meaning no entity will be able to simply invent or print out more and decrease its value.

  • It Has Great Long-Term Growth Potential

Long Term investments in cryptocurrencyPutting aside the significant growth in value Bitcoin has experienced this year, there are still other valid indicators that suggest crypto is here to stay. The rise in crypto-specific patent applications along with the rising interest coming from tech giants are just some of the signals that very big players believe in the future of cryptocurrency.

Discussing the potential of a relatively new system is a controversial topic but there are certainly reasons why many experts and big company executives believe cryptocurrency has huge long-term potential for growth. A recent comment made by Apple Pay vice president Jennifer Bailey has stirred this discussion even further.

The Downsides

  • It Carries a Lot of Uncertainties 

Investing in CryptoThe fact of the matter is that with both crypto and blockchain we’re all very deep in uncharted territory. Economic experts are divided in their opinions at best and their predictions range broadly from incredibly optimistic to disappointingly pessimistic.

One of the reasons for these discrepancies lies in the fact that certain characteristics of the system are open to interpretation. For example, the volatility of cryptocurrency can be considered to be both a strength and a weakness of the system.

Bitcoin is only just about a decade in existence which is too short of a time-frame to really understand and predict how a financial system will look like in the future.

  • It Has Significant Added Fees 

Trading in cryptocurrency through your IRA comes with different types of fees which vary depending on the custodians or trustees providing you with the account. These trading fees usually vary depending on the type of crypto so if you’re considering making an investment, make sure to take these variations into consideration.

  • It Comes with Additional SDIRA-Related Risks

Every self-direct IRA carries specific risks which is something you won’t be able to avoid if you’re looking to maximize the benefits of tax-free growth. The risks come from the fact that SDIRAs have a set of strict rules you must adhere to in order to avoid paying penalties or getting charged with fraud. SDIRAs also come with a set of fees like a one-time establishment fee, a first-year annual fee, annual renewal fee, and fees for investment bill paying.

All of this burden is that much heavier because you have to carry it all by yourself since custodians can’t legally offer financial advice. Finding a good financial advisor is an option but it’s also not very cheap.

Should You Do It? 

With everything considered and taken into account, we can certainly say that it’s not the simplest, easiest way nor is it the safest way of setting up a retirement plan. If you’re not even the least bit familiar with cryptocurrency you should probably either figure out another way or look to educate yourself on the subject.

Another thing we can conclude with confidence is that cryptocurrency shouldn’t be considered an all-in strategy, at least for the foreseeable future. The huge potential gains are very exciting but you need to remember what’s on the line.

Those who are uncomfortable with sizable fluctuations in their finances should look to other places to invest their money. Or if you’re close to retirement and don’t have a lot of funds to spare, it’s probably best to sit this one out. Losing your health over the stress of rapid changes in the crypto market is just not worth it.

On the other hand, if you’re still a fairly long way away from getting out of the game and have a few bucks to set aside, cryptocurrency just might be a great thing to try. If you’re smart about it and approach it gradually you can surely set up a scenario where the potential gains drastically outway the potential losses.

Thank you for reading the article.

AuthorBio: Mark is a biz-dev hero at Invoicebus – a simple invoicing service that gets your invoices paid faster. He passionately blogs on topics that help small biz owners succeed in their business. He is also a lifelong learner who practices mindfulness and enjoys long walks in nature more than anything else.

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Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

This is a guest post. We do not endorse or guarantee the accuracy of the information and claims made.


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