iras

A crypto IRA, or cryptocurrency Individual Retirement Account, is a self-directed IRA that allows you to invest directly in cryptocurrencies while enjoying the tax benefits of traditional retirement accounts. This type of IRA is not specifically recognized by the IRS; instead, it includes digital currencies in its portfolio.
How crypto IRAs work
Self-directed: A crypto IRA is a kind of self-directed IRA, which provides access to alternative assets like cryptocurrency. In contrast, standard IRAs with broker-dealers typically hold only traditional assets like stocks and bonds.
Custodians: The IRS treats cryptocurrencies as property. Therefore, you cannot directly transfer your crypto into an IRA. You need a custodian, like a trust company, that is authorized to manage alternative assets and maintain compliance with IRS rules.
Funding: You can fund a crypto IRA with cash, either by making new annual contributions or by rolling over funds from an existing retirement account, such as a traditional IRA or 401(k).
Trading: Once your account is funded, the custodian collaborates with a crypto exchange to manage the buying and selling of cryptocurrencies inside your tax-advantaged account.
Tax advantages
Depending on the type of IRA, holding crypto in it offers tax benefits:
Traditional Crypto IRA: Contributions are tax-deductible, and your investments grow without immediate taxes. You pay taxes at ordinary income rates when you take money out in retirement.
Roth Crypto IRA: You make contributions with after-tax dollars, but qualified withdrawals in retirement are completely tax-free.
Risks
While crypto IRAs offer potential benefits, they also present significant risks:
Volatility: Cryptocurrencies are extremely volatile, and a sharp decline could greatly affect your retirement savings.
Fees: Custodians may charge various fees, including setup fees, annual maintenance fees, and trading fees.
Missed tax-loss harvesting: You cannot use tax-loss harvesting in a tax-advantaged retirement account. This strategy can be helpful with volatile assets like crypto.
Security: Although custodians provide high-level security, there is still counterparty risk because you do not keep the crypto in your personal wallet.
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