How much will one Bitcoin be by the time you retire? And if your Bitcoin is in a regular investment account, how much will you owe in capital gains tax? When it comes to tax-advantaged ways to save for retirement, everyone knows about IRAs. But did you know crypto IRAs can be an incredible way to protect your investments from crypto taxes while allowing you to potentially take advantage of the price appreciation of Bitcoin and Ethereum? Let’s look at a few of the options when it comes to investing in Bitcoin IRAs, and how you can turn any IRA – even if your retirement account is through your company into a Bitcoin IRA.
Bitcoin Retirement Reference Guide
Please note if your spouse has a retirement plan, you have more than one type of retirement account, or your employer doesn’t have a matching program, your eligibility or contribution limits may vary.
|Traditional IRA||Roth IRA||Traditional 401k||Roth 401k|
|Pay taxes later||Pay taxes now||Pay taxes later||Pay taxes now|
|Deduct contributions||Tax-free growth||Deduct contributions||Tax-free growth|
|No employer matching||No employer matching||Potential employer matching||Potential employer matching|
|No income limits||Income limits||No income limits||No income limits|
|Typically up to $6,000/year||Typically up to $6,000/year||Typically up to $19,500/year||Typically up to $19,500/year|
Traditional Bitcoin IRA
Traditional IRAs are the most basic retirement option. The primary advantage of a traditional IRA is that whatever money you put into it is tax-deductible, lowering your tax liability for the year. You can deduct up to the maximum contribution amount of $6,000 each year (up to $7,000 for those over age 50) from your taxes. The money that goes into a traditional IRA is also pre-tax money, meaning you don’t pay taxes on it when you contribute (and therefore might be able to contribute more) but you will pay taxes on it when you withdraw.
Meanwhile, if you’re not covered by any other retirement plan, you can contribute to a traditional IRA no matter what your income level is. If saving money on the year is of particular importance, or you think you’ll be in a significantly lower tax bracket when you retire, a traditional Bitcoin IRA could be a good option. However, with crypto’s potential gains, Roth IRAs can offer unique advantages over traditional ones.
Bitcoin Roth IRAs
The beauty of a Roth IRA is that because you pay tax on the money you contribute before you deposit, that money is tax-exempt from then on. This means that any investments in a Roth – such as crypto assets that could potentially grow exponentially over time – are free from the capital gains tax they would incur if they were in any other investment vehicle.
Any individual can open a traditional or Roth IRA without needing to go through an employer, and they can invest up to the same maximum amounts as a traditional IRA each year. The drawback of a Roth is that only those under certain income levels can use one. In order to contribute the full amount for the year, the total yearly income of single filers in 2021 should be less than $125,000, and those filing jointly not more than $198,000. A Roth can be a great option if you meet the requirements, meanwhile, those with employer-sponsored plans shouldn’t overlook the potential of a 401K.
The standard 401K is a useful investment option for several reasons. First, in 401Ks (like crypto 401Ks) employers may offer matching plans. This means that whatever amount you put towards your retirement for the year, your employer will also add a percentage of your contribution. This is essentially free money in your account – which, when paired with investments that have high growth potential, could mean returns that are exponentially higher by the time you retire. Additionally, you can contribute up to $19,500 each year into a 401K account if you’re under age 50, and investors over 50 can deposit up to $26,000. There are also no income limits regarding who can open a 401K including an Ethereum 401k.
Previously, 401Ks used to be structured like traditional IRAs where you would need to pay tax upon withdrawal. However, the newer Roth 401K is making the 401K potentially a better option than ever. Not all employers offer them (and if you have a matching plan, the matched funds will usually stay in a traditional 401K) but a Roth 401K provides contributors with the best of both worlds. In a Roth 401K, you can deposit up to your regular 401K limit each year ($19,500, or $26,000), while earning your employer’s matching contributions, and let your account grow each year completely tax-free. These rules also apply to Bitcoin 401ks.
Bitcoin went up in price by over 250% throughout 2020. Cryptocurrencies may be poised to continue their rapid growth and including them in your retirement strategy can be a great way to maximize your crypto investments. Through our services, you can easily convert your 401K into a self-directed IRA account that enables you to buy Bitcoin, Ethereum, and other cryptos.
Likewise, setting up an account with a traditional Bitcoin IRA or Roth IRA takes just a few minutes, and you can view your entire account online. As a premier Bitcoin platform with over 100,000 users, we make it easy for investors with almost any type of retirement account to take advantage of crypto’s potential – and maximize their portfolio’s growth – by setting up a Bitcoin IRA. With our services, it’s never been easier to invest in Bitcoin.
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