What is an Ethereum IRA and is it a safe bet? Learn why you should use cryptocurrency to diversify your retirement savings.
Do you want more control over your investments? Do you seek diversification to help manage your risks? Would you like ways to save by cutting out the middleman? An alternative IRA helps you take advantage of all three.
With so many cryptocurrency-related IRAs joining the market, it’s hard to choose which option is best for your portfolio. Few of these products are as secure of a long-term investment as an Ethereum IRA.
What Is Ethereum, Anyway?
Ethereum is a public blockchain platform capable of running programs written in any programming language using the Ethereum Virtual Machine (EVM) operating system. Program actions are triggered by self-executing bits of code called smart contracts. With each transaction, a block is recorded.
Ethereum offers users such advanced coding options it’s being used to deploy smart contracts across numerous industries. Smart contracts can be used in the real-world exchange of:
- Real estate
- Physical goods
- Intellectual property
- Legal contracts
Agreements can be totally anonymous and completely autonomous. It’s an efficient new way of doing business without wasteful oversight by a third (or fourth) party. Groups of people can come together on their own terms and create decentralized autonomous organizations or DAOs dedicated to their chosen purpose. Deregulation is the name of the game and the emphasis is now on efficiency.
Where Does Crypto Come In?
Ethereum’s native cryptocurrency, Ether (ETH), is similar to Bitcoin (BTC) in that it’s a form of digital money you can purchase, trade and hold as a long-term investment, with one major difference. Ether was started with a practical purpose. It’s the method of payment for developers running applications on EVM.
Ether is 2nd only to Bitcoin in crypto market share and has many of the same benefits — and drawbacks. While inflation isn’t a significant problem, altcoin value is volatile. Cryptocurrency is easily influenced by the following:
- Government regulation – Decentralization is crucial to the success of cryptocurrency. Whenever governments announce or pass regulations attempting to control it or make it illegal, the market drops.
- Political unrest – Traditional money backed and influenced by government decisions and regulations rise and fall in relation to current events. When the public loses faith in conventional currency, there’s often a corresponding boost in crypto values.
- New introductions – There’s a ridiculous number of cryptocurrency types on the market. While few make a mark, new players can impact the value of old favorites.
- Market manipulation – On a more amplified scale than the stock market, key players in the cryptocurrency world can cause big changes in demand and value as they buy and sell.
Fortunately, changes in the stock market – which can impact the rest of your investment portfolio – have little-to-no impact on Ether value, which can potentially make Ether a safer investment over time.
What Is an Ethereum IRA?
An Ethereum IRA is a financial product much like the conventional IRAs you’re used to hearing about through your employer’s benefits plan. In addition to building wealth over time by investing your money in stocks and bonds, however, the door is opened to alternative assets. Ethereum and cryptocurrencies are considered alternative assets by IRA standards because a conventional IRA will not include any
Why are people interested in Ethereum IRAs? They allow you to get involved in alternative currencies without needing to invest the time and effort into learning the ropes. A knowledgeable advisor manages the fund while you reap the benefits.
The funds go beyond investing and holding Ether. You can split your interests between crypto, metals, debt assets, real-estate investment trusts, angel investments and more for standard diversification purposes.
Ethereum IRAs can also take on all the forms of conventional funds. You can put your money into a traditional or ROTH IRA, or a SEP or SIMPLE IRA if that works better with your portfolio. Like any IRA, the money is tax deferred until you withdraw the funds during retirement. Early withdrawals are penalized as well.
The Self Directed IRA and its Relation to Ethereum IRAs
A self directed IRA is really just a different way of investing for retirement that has its own set of rules. The holder of the account can invest in many different currencies, however there are still some restrictions set by the government on these kinds of accounts. These rules prohibit certain assets from being placed into a self-directed IRA. Thankfully, there are no restrictions on including cryptocurrencies in your self directed IRA, making it the ideal instrument for an Ethereum IRA. All of the other relevant restrictions on self directed IRAs should be researched or discussed with a financial professional.
Starting the Self Directed IRA
Setting up your self directed IRA is an important and necessary step. This is because a traditional IRA offers the account holder little freedom and manageability in terms of exactly how their money is invested, or when and how it can be used. In a normal IRA, finance professionals will handle all of these details for the account holder, and there are strict rules and penalties that apply based on how the account is used. Someone who holds a self-directed IRA can still receive professional help, but currently a self-directed IRA is really the only way to maintain enough control and autonomy to invest in Ethereum or other cryptocurrencies. Think of the self directed IRA as a much more versatile version of the same concept. Some companies that deal with self directed IRAs and Ethereum, such as Founder’s CPA, already have a streamlined process for investors get specific help from an advisor to set up their account and start taking advantage of these benefits.
Differences in Managing the Account
With this kind of IRA, you generally need to be responsible for the performance of any investments contained in the instrument. This means that you now have the power to act in the place of a financial professional. You can use your own expertise to manage your self directed IRA and any cryptocurrencies that you choose, however an advisor is still recommended. You can potentially do all of your own research, buying, and selling regarding this account if you feel comfortable. However, most companies that handle Ethereum IRAs will also help with some of the administrative paperwork related to taxation and other common concerns.
How to get Ethereum and other Cryptocurrencies in your New IRA
Once the IRA is set up, there are a few basic steps to get started with cryptocurrencies and Ethereum. There is a separate application process for starting investments with a crypto IRA. After this, funds can be transferred away from the existing IRA into the new crypto account. Once the funds are available, you can begin trading and buying Ethereum and other cryptocurrencies just like any other asset. There are also ways to access the funds once the account is set up that allows more control that traditional IRAs. These Ethereum IRAs may become much more stable than regular IRAs over time due to variations in the stock market and the vulnerability of other common investments. The freedom of a self directed IRA also allows you to use this product as a short-term investment as well as a regular retirement account if you choose to do so, due to more relaxed regulations about accessing and withdrawing funds.
What Benefits Will You Get From an Ethereum IRA?
IRAs based on cryptocurrencies offer investors benefits they won’t find in other financial products. They’re the perfect solution for investors who are leery of stock market fluctuations and inflation’s devastating reach. Cryptocurrencies can, and have already, resulted in legendary returns. Ethereum is one of the most well known and successful. These funds also allow investors to protect themselves against big losses through the introduction of new and exciting alternatives with serious potential.
Some additional benefits of Ethereum include:
- Greater freedom in managing how you invest and which assets go into your IRA
- Less volatility during economic downturns than most other investments
- Potential for better growth and more market resilience as a retirement account
- Higher profit margins and leverage than most other currencies available today, which translates into larger account balances
- Security features that are exclusive to Ethereum which allow the user to have a unique access methods
- Minimal damage from inflation because Ethereum is not tied to any government
Make the Investment Today
The establishment of Ethereum IRAs is relatively new, but exciting because the platform is going strong and shows no signs of stopping. You can get in on the ground floor and build your wealth while supporting decentralized, hyper-efficient business models. This new method of investing shows great promise and takes away some of the problems that have been associated with IRAs for years, such as lack of control and slow growth due to market fluctuations. Keep these improvements in mind, and talk to your account specialist about an Ethereum IRA today. For more information on Ethereum, you can get in touch with Founder’s CPA. The financial experts at Founder’s can schedule a consultation to help you get started with a self directed IRA and answer any other questions about the information covered in this article.