To begin this article, we would like to point out that the IRA (Individual Retirement Account) is a product that was developed in the United States. In France, its conceptual equivalent would be the Individual Retirement Savings Plan (PERIN), also known as the Individual Retirement Savings Account. The crypto IRA therefore has something to do with these financial devices evoking the perfect marriage of cryptocurrencies with any form of traditional investment.
Reminder of the basics of cryptocurrency
Cryptocurrency is a digital financial asset, or currency, that allows anyone to invest, trade, or consume goods or services. Its decentralized nature, that is to say not dependent on any financial institution such as a bank, guarantees a price evolution independent of the market, the economy or a particular currency.
Cryptocurrency owes a lot to the blockchain, this ledger technology conducive to the transfer, sharing and monitoring of transactions Peer to peer (P2P). This helped to grow the interest of the general public, who inducted it as a legitimate financial asset.
Seduced by the decentralized side of cryptos, new economic players have also embarked on the investment. Admittedly, this newcomer to the financial landscape is limited in its practical uses and also lacks stability, but its ease of adaptation to traditional financial products such as the IRA is quite exceptional.
IRA and cryptocurrency, what combo?
The crypto IRA completes the existing offer in terms of individual retirement savings accounts: the Traditional IRA and the Roth IRA. This device refers to a retirement account that legitimizes the storage of crypto and the investments associated with them. Like most similar solutions, the crypto IRA is subject to standards and also allows tax advantages.
It is worth mentioning the existence of several companies offering the management of your IRA, which are favorable to the storage of your assets in adequate wallets or to the use of a cryptocurrency exchange on a stock market.
What are the advantages of the crypto IRA?
They are numerous and the future of cryptocurrencies among the major financial assets seems very convincing. All this despite a less stable legal framework, environmental concerns and fluctuating representations depending on the country and the actors.
While cryptocurrencies are often the subject of accusations regarding their volatility, it should also not be forgotten that they are gaining in value, popularity and legitimacy. For this reason, the idea of a positive return when it comes to investing in a crypto IRA is nothing short of utopian.
Added to this:
– tax benefits:
As cryptocurrencies are considered property by the IRS, it is to be expected that gains will be subject to taxes calculated on the basis of short-term and long-term capital gains. Note, however, the possibility of investing a cryptocurrency in an IRA Traditional Where Roth. Both offer considerable tax advantages: those linked to a Traditional IRA result in tax-deductible contributions while those linked to a Roth IRA waive any capital gains tax regardless of how much the token rises in value when the funds are withdrawn.
– decentralization :
Thanks to the crypto IRA alternative, you will be subject to no form of third-party interference or centralized control, knowing that it is the investors themselves who are driving the market. It is in this context that we talk about decentralized finance or DeFi, one of the promises made by very famous cryptos such as Bitcoin (BTC), Ethereum (ETC), etc.
– Security :
The advent of blockchain technology will put an end to practices aimed at falsifying transactions. Its basic principles allow easy monitoring and verification of all financial movements recorded in the register. Apart from its ability to secure transactions, blockchain is also highly valued for hosting useful applications, suitable for the needs of many industries.
– portfolio diversification:
All investors are driven by personal goals and also by their level of risk tolerance. Incorporating a crypto IRA into your investment strategies or pairing it with mainstream financial assets will certainly lead to positive results. We all know that a well-crafted strategy is incomplete without significant investment portfolio diversification.
Crypto IRA, what risks?
Yes, cryptocurrency investors do not always enjoy the red carpet. This ecosystem does have its limits, among others: high costs, fewer use cases, volatility, etc.
Of the three, volatility is often singled out. Undoubtedly, decentralization has something to do with this. But we will also note the existence of many external factors, such as social networks (for example, Elon Musk’s tweets), the absence of strategies, etc.
In a single day, a cryptocurrency can go completely upside down. The wisest investors gradually refine their strategies while taking into account advice on portfolio diversification and mastering the various financial ratios relating to cryptocurrencies.
What about the taxation of IRA cryptos?
A better understanding of the tax legislation concerning cryptocurrencies and that concerning retirement accounts is essential.
What we do know is that in the United States, the Internal Revenue Service (IRS) considers Bitcoin (BTC) and other cryptocurrencies as “property”. Therefore, they are taxable like any form of financial asset.
In France, gains from mining activities are considered as capital gains from sales. And if we take into account article 150 VH bis of the general tax code, these will be taxed at an overall rate of 30%. The government has also indicated that the tax regime to be applied to mining will be based on that of non-commercial profits (BNC).
As we mentioned above, the Traditional Crypto IRA results in tax-deductible contributions, specifically for residents of the United States. By choosing this formula, they will have the possibility of deducting their annual contributions from their taxable income until their retirement. Otherwise, an early withdrawal of funds will generate penalties and new tax obligations.
For the Roth Crypto IRA, they will not pay tax on their capital gains and distributions at retirement. On the other hand, they will be deprived of authorization to deduct the contributions paid into their account from their income.
Crypto IRA, the future of retirees?
Please note, this alternative is only recommended for those familiar with crypto investing and trading. But if you plan to diversify your retirement fund, give crypto IRA a try.
In the land of Uncle Sam, setting up a self-directed IRA is an option available to investors. In France, a tax system avoiding double taxation has been put in place by the State in order to encourage the return to France of French expatriates in the United States.
In France, financial analysts advise against adding digital financial assets, such as cryptocurrencies, to a retirement savings account. The reason is that the fees seem very high and the retirement savings account is self-managing. There is also the problem of volatility which will weaken any individual retirement savings account or PERIN. Let’s also not forget the accusations from the SEC regarding the possibility of cryptocurrency-related fraud. But it would seem that these analysts have forgotten the true meaning of the terms “portfolio diversification” and “investment”.
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The blockchain and crypto revolution is underway! And the day when the impacts will be felt on the most vulnerable economy of this World, against all hope, I will say that I had something to do with it