Finances & Money

Things to Know Before Funding Your Cryptocurrency IRA

If the value of cryptocurrency soaring throughout last year, a lot of investors are looking for ways to take advantage of this, placing there money into a cryptocurrency IRA.This is a type of self directed IRA, which means that you, as the Investor, have to make your own decisions in terms of what to buy and what not to buy.  Remember that all investment portfolios should be diverse portfolio, which means that although you may have started in cryptocurrency IRA, you don’t have to invest solely in cryptocurrencies.

What Are Cryptocurrencies?

A cryptocurrency is a digital form of currency that is fully decentralized, and that uses cryptography. This means that all communication is hidden from any third party. This makes cryptocurrencies incredibly secure, almost entirely Anonymous, and very private. Result is also that the value of a cryptocurrency is determined not by a bank, but rather by those who buy them, with the value essentially being whatever someone is willing to pay for it.

The best  known cryptocurrency is Bitcoin. However, many have been inspired by this and are becoming very popular as well. In fact, bitcoin used to hold 90% of the cryptocurrency market, and this is now dropped to 40%. The other cryptocurrencies of interest or dash, Z cash, litecoin, ethereum, and ethereum Classic.

A Cryptocurrency IRA and the IRS

The beauty of an IRA is that you can make either tax exempt contributions or tax exempt with drawers. Hence, if you are going to invest in cryptocurrencies, it is important that you know what the standpoint of the IRS is since they make all the decisions in terms of taxes. Notice 2014-21  was released on March 25th, 2014. This stated that cryptocurrencies are a type of property. That means that the general tax principles apply to them. Hence, it is a capital asset just as real estate or stocks and bonds are. But it also means is that you are responsible for maintaining all the relevant transaction records as this will determine how much tax has to be paid.

The IRS does not have rules and regulations on what you can invest in with a self directed IRA. Rather, they only tell you what you can not investing. This includes being a disqualified person, collectables, and life insurance. In other words, cryptocurrencies are not classed as a prohibited item.

One of the key reasons why you may want to consider using a cryptocurrency IRA it’s because of the tax benefits of both the Roth and traditional IRA, but also because of the fact that it is undeniable that cryptocurrencies are very likely to grow in value over the next few years. While they may slowly lose some of their value over time, they will eventually stabilize and retain a higher value than before. At least, that is what past trends show us. Additionally, it means you can further diversify your overall portfolio, which is always a good idea that makes a lot of financial sense.

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Susan Paige

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