You Will Make $354,730 Tax Free If You Invest in Bitcoin

Jayanand Sagar | September 21, 2016 | 9:26 am
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You Will Make $354,730 Tax Free If You Invest in Bitcoin

Jayanand Sagar | September 21, 2016 | 9:26 am

In the present day situation, a retirement fund is essential to ensure that one continues to enjoy a quality life when they grow old. In order to ensure that a person continues to receive some kind of income in their post-retirement days, Governments have made allowances for various investment schemes.  Individual Retirement Account (IRA) and 401(k) are two such forms of investment.

There are multiple types of IRA. the prominent ones are Traditional IRA and Roth IRA. In traditional IRA, the investor will fund the account with pre-tax income. The contribution towards the IRA is not taxed. However, the funds will be taxed at regular rates during the time of withdrawal (after the person attains the age of 59 and half years).  In Roth IRA, the investment is made with tax-paid income and the gains during the IRA term is not taxable at the time of withdrawal (provided the withdrawal is made after the person attains the age of 59 and a half).

As per the IRS regulations, IRA funds can be invested in stocks and other assets through a custodian and any dividends earned out of these investments can be diverted back into the IRA. With Bitcoin declared as a type of asset, it is legally possible to invest in Bitcoin as part of an IRA. Bitcoin IRA is a recognized service by the IRS.

Investing in Bitcoin IRA is a three step process.

Step 1: Application and Funding

The investor will have to fill the paperwork to transfer retirement funds from an existing IRA or 401(k) to the new IRA

Step 2: Invest

Once the transfer is done, individuals can start investing in IRA funds in Bitcoin

Step 3: Store

The bitcoin investments are stored securely in an IRA approved electronic wallet.

Investing in Bitcoin-based IRA has a lot of advantages

For starters, Bitcoin price is not directly connected with other conventional assets. So, even if there is a turbulence in the market, Bitcoin is most likely going to stay untouched by the aftereffects. At the same time, the value of Bitcoin is only going to appreciate in the future, thanks to a fixed supply of 21 million tokens. In the case of fiat investments, the purchasing power falls drastically with time due to inflation. Also, the tax benefits are huge with Bitcoin IRA than conventional investments.

Example:

Bitcoin price has exhibited a positive trend since its inception. The bitcoin price chart clearly shows the gradual progression of Bitcoin price over years (except for a sharp downward turn in 2014 due to Mt Gox fiasco).

Provided a person starts investing in Bitcoin IRA (Roth) today at the age of 35 years and continues to invest the maximum allowed amount each year until he attains the age of 59 years.  

Then, as per the calculation;

The current value of 1 bitcoin as on September 21, 2016 = $607.4

Maximum allowed investment into IRA per year = $5,500 (assumed to be fixed throughout the term)

Assumed appreciation of Bitcoin price = 10% per annum (conservative assumption)

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According to the calculations, he would have invested in about 89.5 bitcoins by the time he reaches the age of 59 and a half. Even though his actual post-tax investment over the period of 24 years stands at $132000, the total savings in fiat would stand at around $ 486730.65 (which is over $354730 more than the actual investment), all tax-free.

This shows that Bitcoin IRA can be much more profitable than conventional IRAs and 401(k)s.

Ref: IRS-Traditional IRA | IRA-Roth IRA |Bitcoin IRA

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