Retirement isn’t something a lot of young people think about. However, Forbes believes that the best age at which to start preparing for retirement is when you’re young. This leaves the most time for your investments to compound into an even bigger nest egg when you need it. Time is a great asset for any investment class, but maybe an even bigger one when it comes to investing in Bitcoin and other cryptocurrencies.
Bitcoin’s Growth Potential
The growth of cryptocurrencies like Bitcoin have been making headline news for several weeks. However, Bitcoin came into being over a decade ago, trading at under $200 when it was first created, and despite its famously volatile swings, has continued to grow over the last 12 years.
Price increases like those in crypto markets are rarely seen in the stock market, which appreciates an average of 9.2% year over year. Meanwhile, Bitcoin’s technology – ushering in a new digital currency era, according to Jack Dorsey, Twitter’s CEO, is just beginning to gain mainstream acceptance and adoption. As institutions enter the ring, Bitcoin adoption, and growth, may increase over the coming years.
Regardless of Bitcoin’s often dramatic price swings, and despite its recent rise, the long-term outlook for Bitcoin is promising, making it a potentially advantageous choice for investments that have a long time horizon such as retirement accounts.
Bitcoin and cryptocurrency experts like Mark Yusko, Anthony Pompliano, PlanB, and Willy Woo have great expectations for Bitcoin’s potential. They all have Bitcoin price predictions believing that Bitcoin will be at least $100,000 by the end of 2021.
Diversifying with Cryptocurrencies
Many Bitcoin enthusiasts see investing in Bitcoin as an alternative to traditional financial offerings like stocks, bonds, and gold. It’s also been praised as a hedge against inflation, and as an “uncorrelated asset” – or one whose price action doesn’t follow other markets in the event of a wider market downturn.
This means those who invest in Bitcoin can benefit from the diversification it provides for their portfolio. Diversification is important because it not only provides opportunities through exposure to many different asset classes but also because it spreads out the risk.
Tax Advantages of a Bitcoin IRA
Individual retirement accounts (IRAs) come in a couple of different forms, and if you’re able to invest in your retirement with a Roth IRA, any gains your investments make can be withdrawn at retirement tax-free. This means no capital gains tax for IRAs, so you keep more of your money. For crypto, and its growth potential as mentioned earlier, being able to eliminate capital gains tax is a huge advantage that could result in an even bigger windfall at retirement.
While taxes either from holding Bitcoin outside of an IRA or even in a traditional IRA can be as high as 20% – long-term holders with funds in a Roth 401k or Roth IRA get tax-advantaged savings. Roth IRAs are more regulated, and income determines whether you are eligible to contribute to one. And as far as traditional IRAs, you would just pay income tax on distributions at retirement.
Meanwhile, anyone making trades in their IRA can also avoid capital gains taxes – as well as a hefty load of paperwork – that they would be responsible for if they were trading outside of an IRA.
Bitcoin is on the mind of many millennial investors, even if retirement accounts are not. However, there are many advantages to including Bitcoin in a traditional retirement account like an IRA. With crypto’s long-term growth potential, the diversification it can offer as a hedge against macro risks, and the specific Bitcoin tax benefits of investing through a Roth IRA – thinking about Bitcoin and retirement together can be a great combination.
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