What is a Bitcoin IRA? Tax Free Bitcoin Trading (US Only)

Summary

The video script introduces the concept of Bitcoin IRAs, a type of Individual Retirement Account (IRA) that allows US citizens to invest in cryptocurrencies like Bitcoin and Ethereum for retirement with significant tax benefits. It explains the two main types of IRAs: Traditional and Roth, each with different tax implications and contribution rules. The script outlines the benefits of tax-free trading and the importance of consulting with a financial advisor before making decisions. It also discusses the process of starting a cryptocurrency IRA, including the options of starting from scratch, rolling over a 401k, or transferring from an existing IRA. The importance of considering fees, security measures, and the trading platform is highlighted, along with the need for research when choosing a company to manage the IRA. The presenter, Nate Martin from 99Bitcoins.com, encourages viewers to ask questions and provides resources for further information.

Takeaways

• 📚 A Bitcoin IRA is a type of Individual Retirement Account (IRA) that allows US citizens to invest in cryptocurrencies like Bitcoin for retirement purposes.
• 💼 Traditional IRAs provide tax write-offs for contributions and tax-deferred gains, while Roth IRAs use after-tax contributions and offer tax-free gains during retirement.
• 🚫 It's crucial to consult with a financial advisor or tax professional before making any decisions regarding your financial future and IRAs.
• 💰 There are significant tax benefits to investing in an IRA, including tax-free trading, tax-deferred gains, or tax-free gains.
• 🔄 Both Traditional and Roth IRAs allow for unlimited trades without taxable events, but there are different tax implications based on the type of IRA.
• 🚫 Early withdrawal from a Traditional IRA before the retirement age can result in penalties and taxes on deferred income and gains.
• 💰 Roth IRA contributions are made with after-tax income, allowing for tax-free withdrawals during retirement.
• 💡 The decision between a Traditional and Roth IRA depends on whether you prefer to pay taxes now or later.
• 🌐 Crypto IRAs are a new investment option that allows investors to buy and sell cryptocurrencies within their IRA, benefiting from tax-free trading.
• 🔢 Annual contributions to an IRA are capped, and it's important to research the contribution limits to maximize the benefits.
• ⚖️ There are specific rules and potential penalties associated with withdrawing funds from an IRA before retirement age.
• 🏦 To start a cryptocurrency IRA, you can open a new account, roll over a 401k, or transfer an existing IRA to a financial institution that supports cryptocurrency investments.

Q & A

What is the primary purpose of an Individual Retirement Account (IRA)?

An IRA is an investment concept started in the 1970s to incentivize Americans to save more for retirement. It offers significant tax benefits such as tax-free trading, tax-deferred gains, or tax-free gains, and requires investors to wait until retirement before cashing out.

What are the two main types of IRAs?

The two main types of IRAs are the Traditional IRA and the Roth IRA. Traditional IRAs offer tax write-offs for contributions and tax-deferred income, while Roth IRAs require after-tax contributions and provide tax-free gains and withdrawals during retirement.

What is a Bitcoin IRA, and how does it differ from a regular IRA?

A Bitcoin IRA is a type of IRA that allows investors to buy and sell cryptocurrencies like Bitcoin within the account. The main difference is that it enables tax-free trading of cryptocurrencies, which is not possible in a regular IRA.

What are the tax implications of making a withdrawal from a Traditional IRA before the retirement age?

Withdrawing from a Traditional IRA before reaching the specific retirement age, usually 59 and a half, results in penalties. This includes paying all the income taxes deferred on the deposits and any gains realized, as well as an early withdrawal penalty.

What is the income limit for contributing to a Roth IRA in 2020?

In 2020, individuals cannot contribute to a Roth IRA if their income exceeds $139,000, and married couples filing jointly cannot contribute if their income exceeds $206,000.

What is the annual contribution cap for an IRA in 2020?

In 2020, the annual contribution cap for an IRA is $6,000, or $7,000 if the individual is over the age of 50.

What are the three ways to start a cryptocurrency IRA?

The three ways to start a cryptocurrency IRA are: starting a new crypto IRA from scratch, funding it with a 401k Roll Over from an old employer, or transferring an existing IRA from another financial institution to a new one that allows crypto investments.

What are some common fees associated with a Cryptocurrency IRA?

Common fees include Initial Purchase Fees charged upon the first purchase of crypto assets, Trading Fees for each trade or transaction, and On-Going Fees which cover account setup, storage, administration, and platform fees.

How are the invested cryptocurrencies in a Bitcoin IRA stored and secured?

Invested cryptocurrencies in a Bitcoin IRA are held by a custodian who employs various security measures to keep them safe. The custodian's reputation and the specifics of their security protocols are important to consider.

What are some factors to consider when choosing a company to manage your IRA?

Factors to consider include the company's fees, how cryptocurrencies are stored and secured, the reputation of the custodian, and the functionality and user-friendliness of the trading platform.

What is the process known as 'Distribution' in the context of Traditional IRAs?

A 'Distribution' is the process by which investors withdraw money from their Traditional IRA into their personal bank account. It is usually reserved for those who have reached their retirement age, which is 59 and a half for most people.

What are the potential benefits and drawbacks of investing in a Crypto IRA?

Benefits include substantial tax incentives and the ability to invest in cryptocurrencies. Drawbacks may include annual contribution limits, penalties for early withdrawals, and the need to research and choose a trustworthy provider with clear fee structures and strong security measures.

Outlines

00:00

💼 Understanding Bitcoin IRAs and IRAs Basics

The video introduces the concept of a Bitcoin IRA, which is an Individual Retirement Account (IRA) that allows investment in Bitcoin and other cryptocurrencies. It emphasizes the importance of consulting with a financial advisor before making any financial decisions. The video explains that an IRA is designed to encourage saving for retirement with significant tax benefits. There are two main types of IRAs: Traditional and Roth, each with different tax implications and rules regarding contributions and withdrawals. Traditional IRAs offer tax deductions on contributions and tax-deferred gains, while Roth IRAs use after-tax contributions and provide tax-free gains and withdrawals. The video also touches on the recent ability to invest in cryptocurrencies within IRAs, which has led to the rise of 'Crypto IRAs'.

05:01

🚀 Starting Your Own Cryptocurrency IRA

The video outlines three methods to start a cryptocurrency IRA: beginning with a new account, rolling over a 401k into an IRA, or transferring an existing IRA to a new institution that supports crypto investments. It highlights the importance of understanding the fees associated with a Crypto IRA, including initial purchase fees, trading fees, and ongoing fees like account setup and storage. The security of the invested cryptocurrencies is also a key consideration, with questions about where the coins are held and what security measures are in place. The video advises viewers to research and choose a trustworthy company that aligns with their investment goals, and to examine the trading platform's ease of use, availability, and the types of cryptocurrencies offered.

10:04

📚 Final Thoughts on Bitcoin IRAs

The video concludes by reiterating the nature of a Bitcoin IRA as a retirement investment vehicle with tax advantages for investing in cryptocurrencies. It invites viewers to ask questions in the comments section and to check out the IRA recommendations provided in the video description. The host encourages viewers to like, subscribe, and enable notifications to stay updated with new content, and thanks them for watching the episode of Crypto Whiteboard Tuesday.

Keywords

💡Bitcoin IRA

A Bitcoin IRA is a type of Individual Retirement Account (IRA) that allows investors to invest in cryptocurrencies like Bitcoin as part of their retirement savings. It is a relatively new concept that has emerged with the growing popularity of cryptocurrencies. In the video, Nate Martin discusses how Bitcoin IRAs can offer significant tax benefits and how they fit into the broader category of 'Crypto IRAs.'

💡Individual Retirement Account (IRA)

An IRA is an investment vehicle established in the 1970s to encourage Americans to save for retirement. It offers significant tax benefits, such as tax-free trading, tax-deferred gains, or tax-free gains, depending on the type of IRA. The video explains that IRAs have evolved to include cryptocurrency investments, which is a key point in understanding the concept of a Bitcoin IRA.

💡Tax Benefits

Tax benefits are a key incentive for investing in an IRA. These benefits can include tax-free trading, tax-deferred gains, or tax-free gains. The video emphasizes that these benefits are a major reason why IRAs are popular for retirement savings. In the context of a Bitcoin IRA, these tax advantages can make investing in cryptocurrencies more attractive from a financial planning perspective.

💡Traditional IRA

A Traditional IRA is one of the two main types of IRAs discussed in the video. It allows for tax write-offs on contributions and tax-deferred gains, meaning taxes are paid upon withdrawal during retirement, not on the contributions themselves. The video explains that Traditional IRAs were introduced by the Employee Retirement Income Security Act of 1974 and made popular by the Economic Recovery Tax Act of 1981.

💡Roth IRA

A Roth IRA is the second type of IRA mentioned in the video. Unlike a Traditional IRA, contributions to a Roth IRA are made with after-tax income, and all withdrawals during retirement are tax-free. The video notes that Roth IRAs were introduced by the Taxpayer Relief Act of 1997 and have income limitations for contributors, making them less accessible to higher-income individuals.

💡Crypto IRAs

Crypto IRAs refer to IRAs that allow investors to buy and sell cryptocurrencies without incurring taxes on each trade. This is due to the tax-free trading benefit inherent in IRAs. The video discusses how Crypto IRAs have become a new industry, allowing investors to diversify their retirement portfolios with cryptocurrency investments.

💡401k Roll Over

A 401k Roll Over is a method of transferring funds from a 401k or other employer-sponsored retirement plan into an IRA. The video mentions this as one of the ways to fund a cryptocurrency IRA. This rollover does not trigger a taxable event and provides the investor with more flexibility, as IRAs are generally more flexible than 401k plans.

💡IRA Transfer

An IRA Transfer is the process of moving an existing IRA from one financial institution to another, which allows the investor to access different investment options, such as cryptocurrencies. The video explains this as another way to fund a cryptocurrency IRA without triggering a taxable event.

💡Custodian

A custodian is a financial institution that holds and safeguards an investor's assets, such as the cryptocurrencies in a Crypto IRA. The video emphasizes the importance of understanding who the custodian is and their reputation, as well as the security measures they have in place to protect the investor's assets.

💡Tax-Free Trading

Tax-free trading is a unique benefit of Individual Retirement Accounts, including Bitcoin IRAs. It means that investors do not have to pay taxes on capital gains made from buying and selling assets within the IRA. The video uses the example of selling Bitcoin at a profit within an IRA to illustrate how this benefit can make investing in cryptocurrencies more advantageous.

💡Distribution

A Distribution in the context of an IRA refers to the process of withdrawing money from the account. The video explains that with Traditional IRAs, distributions are typically reserved for those who have reached retirement age, which is usually 59 and a half, and that early withdrawals can incur penalties. For Roth IRAs, the principal can be withdrawn at any time without penalties, which is a significant difference.

Highlights

A Bitcoin IRA is a retirement-oriented investment account that allows investing in cryptocurrencies with substantial tax incentives.

IRA stands for 'Individual Retirement Account', an investment concept started in the 1970s to incentivize Americans to save more for retirement.

IRAs offer significant tax benefits such as tax-free trading, tax-deferred gains, or tax-free gains.

Investors hold over $9 trillion dollars worth of investments in IRAs, showcasing their success and popularity.

There are two types of IRAs: Traditional IRA and Roth IRA, each with different tax implications and contribution rules.

Traditional IRAs provide a tax write-off for each contribution and allow for unlimited trades without taxable events.

Roth IRA contributions are made with after-tax income and offer tax-free gains and withdrawals during retirement.

Crypto IRAs enable buying and selling cryptocurrencies within an IRA, avoiding taxes on each trade due to the tax-free trading benefit.

The decision between a Traditional and Roth IRA depends on whether one wants to pay taxes now or later.

IRA contributions are capped annually, with different limits for those over 50 years old.

Withdrawals from Traditional IRAs before retirement age may incur penalties, while Roth IRAs allow penalty-free withdrawal of the principal at any time.

Crypto IRAs require a combination of a trustee, trading platform, custodian, and access to a cryptocurrency exchange.

Investors can start a cryptocurrency IRA from scratch, through a 401k Roll Over, or an IRA Transfer.

When choosing a company to manage a Crypto IRA, it's important to consider fees, security measures, and the reputation of the custodian.

The trading platform's ease of use, availability of 24/7 trading, and the range of available cryptocurrencies are key factors for investors.

For further research, the video description provides links to popular Bitcoin IRA companies and additional IRA recommendations.

Transcripts

The following video is relevant for US citizens only

and is meant for information purposes only.

It is not intended to offer any investment advice.

Any action regarding your financial future and IRAs

should be done in consultation with a financial advisor or tax professional.

What is a Bitcoin IRA?

Can I really use Bitcoin to save for my retirement?

Are there any risks I should be aware of? And where do I even start?

Well, stick around.

Here on Bitcoin Whiteboard Tuesday, we’ll tackle these questions and more.

Hi, I’m Nate Martin from 99Bitcoins.com and welcome to Crypto Whiteboard Tuesday

where we take complex cryptocurrency topics,

break them down and translate them into plain English.

Before we begin, don't forget to subscribe to the channel

and click the bell so you’ll immediately get notified when a new video comes out.

Today's topic is “Bitcoin IRAs”.

But in order to understand what a Bitcoin IRA is,

we first need to understand what an IRA is.

IRA stands for “Individual Retirement Account”.

It’s an investment concept that started in the 1970’s

to incentivize Americans to save more for retirement.

In simple words, it’s an investment portfolio with great benefits,

but in order to get those benefits

you have to wait until you retire before you cash it out.

What benefits?

SIGNIFICANT tax benefits such as tax-free trading,

tax-deferred gains or tax-free gains.

IRAs have been extremely successful with several enhancements over the years.

Today, investors hold over $9 Trillion dollars worth of investments in IRAs.

There are two different types of IRAs.

First you have a “Traditional IRA”.

Traditional IRAs were introduced

with the Employee Retirement Income Security Act of 1974 (ERISA)

and made popular with the Economic Recovery Tax Act of 1981.

The traditional IRA gives you a tax write off each time you invest money in it,

commonly known as making an “IRA Contribution”.

Additionally, you can make an unlimited amount of trades in this account

without them being considered taxable events by the IRS.

With traditional IRAs,

the income you deposit is not subject to income tax:

well...not yet.

Instead, you pay taxes only on the amounts you withdraw after you’ve retired.

However, if you decide to cash out your money from a traditional IRA

before your specific retirement age, usually 59 and a half,

you will get penalized by paying

all of the income taxes you deferred on the deposits and on any gains realized,

as well as an early withdrawal penalty.

The other type of IRA is the “Roth IRA”,

which was introduced as part of the Taxpayer Relief Act of 1997

by Delaware senator William Roth.

The Roth IRA requires IRA contributions to be made only from earned income

which has already been taxed.

Like a Traditional IRA,

you can make unlimited trades in the account without any tax implications.

With a Roth IRA

all the gains and withdrawals you make during your retirement are tax-free

since you already paid taxes on your deposits.

Roth IRA’s are one of the most powerful investment vehicles in the world,

but it’s important to know that unlike a traditional IRA,

not all investors can open one.

Generally speaking, the Roth IRA is not available for people

who make over a certain amount of income per year.

For example, in 2020 you won't be able to contribute to a Roth IRA

if you have an income greater than $139k dollars for a single

or $206k dollars for married couples filing jointly.

However, those limits don’t apply to opening and contributing to a traditional IRA.

To sum it up

the difference between a Traditional IRA and Roth IRA comes down to this

“Do you want to pay taxes now, or do you want to pay taxes later?”

This is something for you, your financial advisor

and/or your tax professional to decide.

Until recently, IRA’s were primarily used to trade and invest in Stocks and Bonds

but now investors are able to buy and sell Cryptocurrencies in their IRA’s as well.

This has birthed an entirely new industry,

which frequently falls under the category of “Bitcoin IRAs”

or more generally - “Crypto IRAs”.

Crypto IRAs are companies that allow you to open an IRA

and buy/sell cryptocurrencies on their platform

without having to worry about paying taxes on each trade.

For example, normally if you buy Bitcoin at $5,000 and sell it at $10,000 -

you’d make $5,000 of capital gains, on which you would be required to pay taxes.

In a Crypto IRA, however, you wouldn’t owe any money on taxes,

since tax-free trading is a unique benefit of Individual Retirement Accounts.

So if you are a believer in Bitcoin, Ethereum and other Crypto Assets

continuing to perform well as investments,

it might be worth considering whether a Crypto IRA is for you.

While IRA’s can provide huge benefits for investors,

there are still a few things to consider.

First, in order to build your IRA,

you will need to contribute money each year that will count as your IRA contribution.

Since IRA contributions are capped at certain amounts per year,

you can’t just put all of your money into an IRA and receive the benefits.

For example, in 2020,

the IRA contribution cap is $6,000, or $7,000 if you are over the age of 50.

This typically increases each year,

so you will want to do some research on how much you can contribute.

Second, there are some limitations and conditions for withdrawing money from your IRA.

With Traditional IRA’s,

while investors have the ability to trade between various assets,

they can only withdraw money out of their IRA and into their own personal bank

by performing a process known as a “Distribution”.

Distributions are normally reserved for people who have reached their retirement age,

which, for most people, is defined in these tax laws as 59 and a half.

While there are some exceptions, including filing for early retirement,

normally if one wants to take a distribution before retirement age

there will be an early distribution penalty.

It’s important to talk with your tax or financial advisor

to learn more about how distributions work.

For Roth IRAs,

the principal can be withdrawn at any time with no penalties.

This means that if you Invested a total of $6,000,

and it turns into $12,000,

you can still withdraw up to the invested principal amount of $6,000 at any time.

In addition to withdrawing the principle at any time,

investors can withdraw some profits from their Roth IRA

under certain qualifying circumstances.

These include a first-time home purchase, medical expenses, higher education,

and disability among others.

As I’ve mentioned before,

it’s important to talk with your tax or financial advisor

to learn more about such qualifying circumstances.

So now, after understanding the potential benefits and drawbacks,

let’s talk about how you actually start your own cryptocurrency IRA.

There are 3 ways to start a cryptocurrency IRA:

First, you can start a crypto IRA from scratch.

This means you’ll open a new IRA account and start making contributions to it.

Second, you can fund your crypto IRA with what is known as a “401k Roll Over”.

This is where an investor takes a 401k

or other retirement account from an old employer

and rolls it over into an IRA.

This does not trigger a taxable event

but simply gives you more flexibility, as IRA’s are more flexible than 401k’s.

Third, you can fund your crypto IRA with what is known as an “IRA Transfer”.

This is where an investor takes an Existing IRA from another financial institution

and transfers it to their new IRA, that allows Crypto investments.

This transaction does not trigger a taxable event

but simply allows the investor to pair with a new financial institution,

one that likely allows investments that the investor wishes to access

such as cryptocurrency.

Cryptocurrency IRAs require several factors to come together -

for example, you need a trustee to hold your funds

and to allow you to deposit contributions.

You’ll need a trading platform to manage how you invest and trade.

You’ll also need a custodian for your cryptocurrencies

and access to a cryptocurrency exchange for conducting trades.

There are several companies out there that act as facilitators

and merge all of the elements I just talked about together.

It’s important that you do your own research and find one that fits your investment goals.

In the description below this video, we’ve linked to some good places to start.

Here are a few important things to consider when choosing a company to manage your IRA:

Initially, fees are one of the most important things to consider

when choosing a Cryptocurrency IRA provider.

Be sure to investigate all of the fees and get them in writing.

Here are the most common fees you’ll find:

Initial Purchase Fees are fees that may be charged

upon your first purchase of the crypto assets.

Trading Fees are fees that may be charged each time you perform a trade or transaction.

On-Going Fees include account setup, storage, administration, platform fees

and much more.

If you’re looking into a Bitcoin IRA

you’ll also want to research how the invested cryptocurrencies are stored and secured.

Important questions to ask are:

Where are the coins held?

What security measures are taken to keep them safe?

And who is the custodian for the coins and what is their reputation?

Custodians will usually have a whitepaper

to help potential investors understand the security available,

so make sure to read that as well.

Finally you’ll want to take a look at the trading platform

that allows you to manage your IRA funds.

The way trading is conducted is incredibly important,

you will want to test out the platforms and find one that is easy to understand and use.

Here are a few questions to answer:

Is there a 24/7 trading platform,

or am I required to call in for every single trade?

Can I test out the trading platform before signing up?

What cryptocurrencies are available for trading or investing?

Can I withdraw distributions in cryptocurrencies as well as in dollars?

If you want to get started with some research,

we’ve linked to some popular Bitcoin IRA companies in the description below.

Well, that’s it for today’s episode of Crypto Whiteboard Tuesday.

Hopefully by now you understand what a Bitcoin IRA is -

A retirement oriented investment account

that allows you to invest in cryptocurrencies with substantial tax incentives.

You may still have some questions.

If so, just leave them in the comment section below.

And don’t forget to check out our IRA recommendations

in the description as well.

Finally, if you’re watching this video on YouTube,

and enjoy what you’ve seen, don’t forget to hit the like button.

Then make sure to subscribe to the channel

and click that bell so that you’ll be notified as soon as we post new episodes.

It will really help us out a lot.

Thanks for joining me here at the Whiteboard.

For 99bitcoins.com, I’m Nate Martin, and I’ll see you…in a bit.