Many people, particularly in modern Western culture, tend to look down upon the digital currency Bitcoin. With literally a wealth of high-value monetary and investment options, Bitcoins, and the moderate-to-high amount of risk they represent, Bitcoins are commonly seen through the eyes of the mainstream media, and are left misunderstood, and forgotten.
Is this wise, though? Any financial advisor worth their salt will tell you that 10% of any retirement portfolio should include high-risk, high-yield investments, and Bitcoin capably fits that persona to a T. Only how do you add Bitcoins to your future financial plan? Let’s take a look at one path you might take through the standard financial channels that may prove beneficial in the years to come.
IRAs are popular, but not especially Bitcoin-friendly
What Americans call an IRA, (or an Individual Retirement Account, it may be structured the same but called something different where you are) allows annual investment in the range of $5,500-6,500 per year. This would buy about 11-13 BTC, currently. These are mostly set up by your local banks or broker-dealers and they’ll have stocks, bonds, mutual funds and certificate of deposits (CDs) as their investment vehicle. Safe, with less-than-stellar returns, and they keep the wheels of the economic status quo turning quite nicely. Banks have no real interest in buying Bitcoins. Nothing innovative, much less desirable, to see here.
However, outside of the traditional assets, there lies a great opportunity for diversification by purchasing and holding assets such as real estate, promissory notes, tax lien certificates, gold, and yes, even Bitcoins. Investors can take the route of self-directed IRAs, or SDIRAs, through commercial or private custodians and trustees. The process to add Bitcoins to your self-directed IRA is fairly simple, straight forward, and fast.
It involves opening a self-directed IRA through a secure e-sign application; then the new account is funded via a rollover or transfer. Finally, the investor needs to complete a Bitcoin allocation order, as all of your money probably will not end up in Bitcoins.
IRAs are tax-deferred until you withdraw them, but you can only take your funds without immediate tax or penalty once you reach age 59 1/2. However, you can make a withdraw and perform a “rollover” of the funds into another IRA within 60 days, if necessary. You can also make a new IRA for the year right up to New Year’s Eve, and make your funding deposit by Tax Day, which is April 15th in the United States.
A self-directed IRA is one smart play for the Bitcoin investor with an eye towards the future. If Bitcoins appreciate at even a quarter of the rate of the last five years (Bitcoins were worth about $0.30 in 2011), you should have one very well-funded retirement that a simple 5-year CD or bond will never dream of competing with.
If you plan on being around into your 60’s, a look at this type of investment should be seriously considered by investors, both young and old.