Investment in Bitcoin IRAs: Know the Advantages and Disadvantages

Before you attempt to know about the pros and cons of investing in Bitcoin Individual Retirement Accounts (IRA), it would make sense if you try to understand what a Bitcoin is and how does it work. As Bitcoin is a relatively new concept, there are pretty chances of you being might not even aware of its existence.

What is Bitcoin?

A Bitcoin can be considered as a digital currency. It is a kind of cryptocurrency that is virtual. Bitcoin is a kind of computerized system, decentralized in nature that records transactions in a distributed ledger, which is called Blockchain. In simpler terms, you can visualize Bitcoin as software and a digital phenomenon with a well-defined set of processes and protocols.

How Does a Bitcoin Works?

A Bitcoin is fundamentally a digital file, which is stored in a digital wallet on computers and mobile phones. You can send Bitcoins to other people from your digital wallet, and likewise, you can also receive Bitcoins from people at your digital wallet.

During the transaction process, every detail related to the transaction is documented and saved in a public list, which is known by the name of Blockchain.

It is mainly due to the distributed nature, Blockchain is also called by another name—the distributed ledger—because it is public, and it is downloadable. However, being publicly available does not imply that you can update the Blockchain ledger easily. There are complicated methods to do so. For monitoring Bitcoin transactions, there is no central authority; instead, the participants themselves keep tabs on the transactions by creating as well as verifying ‘blocks’ of transactional data.

How Bitcoins Get Value?

The usefulness of any currency arises from it being a store of value. As people are willing to exchange Bitcoins for actual goods and services, Bitcoins get value.

How to Get Bitcoins?

You can get Bitcoins by the following three ways:

· Buying Bitcoins with actual money

· Letting people pay you with Bitcoins when you sell things

· Create Bitcoins using a computer

What is a Bitcoin IRA?

An Individual Retirement Account (IRA) is a kind of retirement saving scheme, provided by financial institutions to individuals. One of the advantages of IRAs is the tax benefits for retirement savings.

You can regard a Bitcoin IRA as a digital platform that enables you to sell, buy and swap Bitcoins inside your self-directed retirement account.

Despite Bitcoins might not be an ideal currency for retirement investment due to its volatile nature, some financial services companies offer the choice of investing in Bitcoins through self-directed IRAs.

What are the Advantages and Disadvantages of Investing in Bitcoin IRAs?

Investing in Bitcoin IRAs involves benefits as well as challenges. It is therefore imperative for you to understand them before you decide to invest.

Advantages

Diversification of retirement portfolios is one of the remarkable advantages of investing in Bitcoin IRAs. Diversification helps to protect retirement accounts against major market downturns or turbulent environments in the future

The prospect of growth in popularity, as well as accessibility of Bitcoins in the future, is an attractive factor for individuals considering including Bitcoin holdings to their IRAs. Given the future optimistic outlook, Bitcoins can be regarded as potential instruments for investments

It is possible to avoid the hefty capital gain taxes by including Bitcoins in IRAs

Disadvantages

Substantial price fluctuations associated with Bitcoins make it tough to decide whether to include the cryptocurrency in IRAs or not

The hypes surrounding the benefits of Bitcoins seem to be somewhat exaggerated as Bitcoins are yet to replace any regular currency. Moreover, the difficulty in conducting daily business using Bitcoins remains intact

The fees associated with the inclusion of Bitcoins in IRAs are a major cause of worrying. In practice, trading with Bitcoins through IRAs is completely different from the regular stock trading or cryptocurrency exchange trading. As these are not custodians, there are various types of fees during the process of investing in Bitcoin IRAs. The types of fees could be the initial setup fees, custody and trading fees, annual maintenance fees and so on. To add to the worry, service providers also charge recurring custody and maintenance fees.

What Factors Should You Consider Before Investing in Bitcoin IRAs?

To invest or not to invest in Bitcoin IRAs is a tough decision to take, given the associated challenges. So, you need to ponder upon the following factors before finalizing your decision:

Take a Stock of the Risks

Investing with Bitcoin is in a nascent stage. So no one knows what will be the exact future of Bitcoins as a currency. Up until now, trading platforms, such as Bitcoin IRA; are yet to be regulated by the Securities Exchange Commission, a federal agency for protecting the investors.

Ask for Fees & Penalties

Investing in Bitcoin IRA involves fees as well as penalties. Normally, the fees for investing in Bitcoin IRA can be up to 15 percent of your portfolio. Also, investing in Bitcoin IRA mandates a minimum investment of USD 20,000. Therefore, you should carefully analyze the impact of the fees and other monetary aspects before investing in Bitcoin IRA.

Acquaint Yourself With Tax Implications

You will certainly get substantial tax benefits by investing in Bitcoin IRAs but at the same time, you must also be familiar with the losses you might incur if you fail to meet the rigid requirements. Moreover, any withdrawal before you reach 60 years will attract a 10 percent tax.

Conclusion

Investing in Bitcoin IRAs is risky as well as a speculative affair. Therefore, you should consult a qualified professional before jumping upon the Bitcoin IRA bandwagon.