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A Cryptocurrency IRA Is Sort of a Miracle for Crypto Fans and This Is Why

It's a sanity-saving move for tax time.

Photo by Omid Armin on Unsplash

Tax time for cryptocurrency investors is like the ice bath challenge. 🥶 When investors start out, it’s exciting to feel like an early adopter in the revolution of money and finance! 💃🏼😎🕺🏾

Then comes tax time. The buzz gets frozen out by complex evolving reporting requirements. Not to mention the taxes due! 💸💸💸

This cold dose of reality has savvy, experienced cryptocurrency investors looking for alternatives.

Read on to learn more about one example that can warm you up — investing in cryptocurrency in a self-directed IRA. We’ll also talk about iTrustCapital as an example.

Simpler Tax Reporting for Crypto Investors

Every cryptocurrency investor knows or learns the hard way that tax time reporting for crypto investors is a nightmare. Every transaction creates an admin chore at tax time. Worse yet, the volatility in crypto can result in investors owing more tax than the USD value of their crypto come April 15.

When investing in cryptocurrency, these are some typical scenarios:

  1. Taxable trades and capital gains headaches: Every profitable sale creates a short or long-term capital gain, resulting in taxes owed.
  2. Taxes on gains result in payments to the IRS: You have less available capital for future investments.
  3. Devil in the details: Every buy, sell, and swap must be tracked accurately, with cost basis considerations. 🤯

Investing in cryptocurrency through a retirement IRA is one way to solve the dilemma of this complexity. Consider the difference when you invest in crypto in a self-directed IRA (SDIRA):

  1. Unlimited trades that do not cause a taxable event.
  2. Compounding gains rollover within the account year to year.
  3. No need for complex paperwork tracking because your transactions are not creating a taxable event.
  4. Tax-free or tax-deferred growth, depending on the type of IRA.
  5. When you reach the age of 59 ½, you only pay income taxes when you withdraw from a Traditional, SEP, or SIMPLE IRA. You never pay capital gains tax or income tax on a Roth IRA held for five years or more.
  6. By investing in cryptocurrency with an IRA, you are not required to report crypto transactions on your annual taxes. You simply provide contributions made to the account to the IRS. Your IRA custodian helps with other tax reporting. (source)

As you can see, an IRA that invests in cryptocurrency simplifies record keeping and offers tax advantages. 👍🏽 The downside is the risk due to volatility and uncertainty in the crypto market.

iTrustCapital as a Cryptocurrency SDIRA Example

iTrustCapital is the world’s largest crypto IRA platform with over $3.5 Billion in transactions. It is IRS- and SEC-compliant and allows you to open a self-directed IRA (SDIRA) and buy and sell cryptocurrency, as well as gold and silver. iTrustCapital IRAs can be either a Roth IRA, a traditional IRA, or a SEP IRA.

Many iTrustCapital reviews suggest that this option is best for knowledgeable investors taking a long-term view of cryptocurrency. Investors familiar with the risks and volatility in crypto markets and who may be interested in adding gold and silver to their IRA may be a good fit for an iTrustCapital cryptocurrency SDIRA. It’s worth noting that iTrustCapital IRA is only available to US citizens.

Cryptocurrency is a highly volatile investment vehicle, and experts caution about putting too much of your retirement savings into cryptocurrency. iTrustCapital does not give investment advice or have investment advisors on commission.

If you are looking for support in setting up your account, iTrustCapital provides customer service, including online chat or booking a call with a representative. This may be helpful because the process of opening and funding a cryptocurrency SDIRA is complex, with lots of rules.

iTrustCapital is rated “Excellent” with 4.6 /5 on Trustpilot. Users on forums like Reddit also give it excellent reviews.

How to Open an iTrustCapital IRA Account

With iTrustCapital, users fill out an initial application online to open an account. Clients need to provide basic personal information. iTrust will then send clients a more detailed application to fill out. Accounts are free until they are funded.

How to Fund an iTrustCapital IRA 💰

Clients use their iTrustCapital login to access their dashboard and contribute new funds to their account. Deposited funds must be in USD. Clients may then start trading cryptocurrency from within the IRA.

Minimum investment requirements: initial deposit $2500, $1000 annual contributions,

It’s important to note that you cannot transfer cryptocurrency you bought previously into your IRA. Bummer! You can do an in-kind transfer from another crypto IRA, though. See more details below.

There are three ways to fund an iTrustCapital IRA.

Option #1:
Contribute US dollars, by check or wire transfer. No credit or debit cards are allowed. It’s ironic yet true that you can still use a paper check to open an IRA to invest in cryptocurrency. I want to do this just to say I did it, but I’d have to order paper checks again, and I haven’t had them since 2014.🤷🏻‍♀️

Contribution limits are the standard IRA ceilings — at the time of this writing, $6,000 if you are under 50 and $7,000 if you are over 50.

Option #2:
The second option is to roll over an employer retirement plan. You may or may not be able to do a rollover from your current employer. There is no problem rolling over plans from previous employers, though. Rollovers usually take 2–4 weeks.

Option #3:
Finally, you can transfer an existing IRA. If you have cryptocurrency in a different IRA, you do not have to liquidate it to transfer. You can do an “in-kind” transaction and transfer the cryptocurrency directly from one wallet to another.

iTrust Capital ran a promotion for six month’s fee-free trading with the transfer from another cryptocurrency IRA. It expired on September 30, 2021. I mention it as a heads-up example to look out for and ask about when you call for more information.

If you have an annuity in an IRA, you can transfer that as well. Transfers usually take 1–2 weeks.

As of right now, cryptocurrency in iTrustCapital’s IRAs does not earn interest.

When you retire and begin withdrawing funds, you don’t have to convert the cryptocurrency to dollars. You can perform an in-kind distribution.

How to Trade With an ITrustcapital IRA

After setting up your account, you simply log in to your iTrustCapital.com account and dashboard. The platform is open 24/7.

For gold and silver transactions, clients place trades through iTrust, which executes the trade through Montreal-based precious metals dealer Kitco, founded in 1977.

What cryptocurrencies are available? At the time of writing this post, iTrustCapital offers investors the following crypto on their platform.
(You can see an updated list on their website here.)

  • Aave
  • Algorand
  • Basic Attention
  • Bitcoin
  • Bitcoin Cash
  • Cardano
  • Chainlink
  • Compound
  • Cosmos
  • Curve DAO
  • Dogecoin
  • Eos
  • Enjin
  • Ethereum
  • Litecoin
  • Maker
  • Polkadot
  • Polygon (Matic)
  • Solana
  • Stellar
  • Sushi
  • Tezos
  • Uniswap
  • yearn.finance

Investors can also invest in gold and silver.

Fees

Cryptocurrency IRA platforms have different fee schemes. Reviewers criticize some other platforms for high hidden fees and aggressive sales tactics.

ITrustCapital stands out from the competition with clear pricing terms and lower fees relative to other cryptocurrency IRA platforms.

Monthly fee: $0 (The fee used to be $29.95, so this is a fab improvement!)

Cryptocurrency: 1% trade fee

Gold: $50 over spot per ounce

Silver: 2.50 over spot per ounce

You may be wondering, what is the spot price? I know I was. “Spot” is the term for the current market price for 1oz. of gold or silver, which changes minute-by-minute throughout the day.

Storage and Security

When you buy cryptocurrency, it has a private key associated with it. Unfortunately, hacking, scams, and frauds are not uncommon in this evolving market. Many investors store their keys in a personal “wallet” because they want to control access.

With iTrustCapital, the company holds your keys in a “custodial” wallet. That means they control access to the keys.

To comply with IRS rules for IRAs, iTrust’s clients’ digital assets are secured with Curv. Curv is an institutional-grade wallet built on industry-standard protocols for the banking and military sector.

iTrustCapital also holds a $50 M insurance policy with Curv.

ITrustCapital purchased a $320 Million insurance policy from Coinbase Custody for greater insurance.

These policies are steps in the right direction, but the coverage may not cover all client losses in case of a significant problem with the platform. By July 2021, clients had invested over $ 2B on the platform.

Funds stored in US dollars are FDIC insured. Precious metals are stored in the Royal Canadian Mint.

Pros and Cons

The decision to open and invest in an iTrustCapital IRA depends on your situation. Check out these pros and cons to help you decide.

Pros

  • Tax-advantaged cryptocurrency accounts
  • Option to buy gold and silver
  • Good customer service reviews
  • In-kind transfers
  • US regulated IRA (regulation of cryptocurrency is still being figured out)
  • Transparent fees that are lower than some other cryptocurrency IRAs
  • In the event of your death, the company, as your crypto custodian, will ensure your beneficiaries can access your assets without complications. If you keep all your cryptocurrency accounts in a personal wallet, no one can access them after your passing unless they have your passwords.
  • Liquidity — trade 24/7

Cons

  • Self-directed IRAs are riskier — the final responsibility for compliance is up to you.
  • Higher fees and account costs vs. traditional IRAs
  • Cryptocurrency regulation is not finalized; it might affect IRA status if the IRS reclassifies from property to asset.
  • You can’t earn interest on your cryptocurrency.
  • A custodial wallet means you don’t have ultimate access to your keys if the site goes down or the company goes out of business.
  • No mobile app.

No investment is risk-free. It is wise to weigh these pros and cons against other IRA options.

Is a Cryptocurrency IRA Right For You?

As the saying goes, the only things certain in life are death and taxes. In the new world of cryptocurrency, we could add volatility to the list.

The cryptocurrency market is far from settling down. Someone who may be a good fit for a cryptocurrency IRA is a high-income earner with high-risk tolerance looking for long-term investment opportunities.

People with more to invest can afford to put a portion of their savings at risk without risking all of their retirement. 💸

Younger investors with a long-term view can ride the cryptocurrency wave for the next 40 years or more.

These are only examples, and every person is different. Most retirement planning financial experts still say to avoid cryptocurrency altogether.

If you invest in a cryptocurrency IRA, they recommend only investing a small amount. Keep the majority of your tax-advantaged retirement in traditional IRA accounts.

👉 👉 👉 Disclaimer: This post is for informational purposes only. This post is not investment advice. I am a writer, not a registered investment advisor or broker-dealer. Please talk to a registered investment advisor or attorney for advice.

If you see something missing or incorrect, I appreciate constructive feedback.🤔🙂

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