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Bitcoin IRA: How to Save for Retirement Using Cryptocurrency

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Technology has revolutionized the way we manage our savings and retirement accounts. Until recently, cryptocurrency was considered too volatile for inclusion in individual retirement accounts (IRAs). Though still plenty volatile, cryptocurrency is now considered too good to pass up. Suddenly, a bitcoin-based retirement account doesn’t seem like such a bad idea after all.

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Bitcoin IRA: An Introduction

The bitcoin IRA falls under a much broader umbrella of digital IRAs that are becoming increasingly popular in American investment circles. Digital IRAs are also part of a broader category of self-directed retirement accounts investors can use to maximize their exposure to alternative assets.

A digital IRA – the kind that holds bitcoin, Ethereum and other cryptos – is a self-directed retirement account. Since cryptocurrencies is recognized as property by the IRS, they can be held as investments inside an IRA account. Access to a bigger pool of investments is one of the chief differentiators of the self-directed IRA. In addition to cryptocurrencies, self-directed IRAs offer exposure to real estate, precious metals and a host of other assets. Of course, they can also be used to invest in traditional stocks and bonds.

Self-directed IRAs can also help investors maximize their crypto holdings by offering unique tax advantages that otherwise couldn’t be realized had they purchased them through an exchange. By keeping your bitcoin inside an IRA, you won’t face any tax penalties on investment returns. Of course, this no longer applies when you take the funds out.

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Naturally, there are plenty of misconceptions around bitcoin-based retirement accounts. Hacked.com recently connected with Jay Blaskey, digital currency specialist at BitIRA, to clear the air.

Common Digital IRA Misconceptions

Blaskey says there are at least five core misconceptions currently plaguing the market for digital IRAs. Investors should weigh these carefully before deciding to embark on a bitcoin-driven retirement account. More importantly, they should steer clear of bogus claims issued by investment managers.

Here are, in Blaskey’s own words, the five common misconceptions surrounding digital IRAs.

1. “A Bitcoin IRA from company X is unique in that it is fully IRS compliant.”

No company can claim that it has a unique offering simply because it offers a Bitcoin IRA that is IRS compliant. In reality, this is a capability that a small number of companies, including BitIRA, currently offer. In order for a Bitcoin IRA to be IRS compliant, you simply must ensure that you have set up a self-directed IRA with a qualified custodian and that you adhere to the rules of purchasing and storing your assets, so that you don’t run afoul of any IRS regulations.

2. “Company Y recently introduced a Bitcoin IRA which allows investors to roll over an existing IRA or 401(k) into a Bitcoin IRA.”

While this can oftentimes be correct, statements like this from some companies make it sound as though any IRA or 401(k) can be moved to a Bitcoin IRA. However, that is not always the case. For example, if you opened your 401(k) with your current employer, you likely cannot move it to a Bitcoin IRA. One exception is that those who are 59 1/2 years or older may be able to make this move without any penalties. The rules can be complex in some cases, so we often refer our customers to their accountants to fully understand their personal situation.

3. “You should set up an LLC to start a self-directed IRA.”

You don’t need to. It is possible to do it this way, but it will probably be a much more time consuming and complicated solution than going with a company like BitIRA, which does all of the paperwork administration that is required for you. Also if any mistakes are made in the setting up or annual filing, later auditing by the IRS could deem that you made a distribution. In such an event, you would be exposed to negative taxable events along with fines and penalties.

4. What are the rules and fees in place for self-directed IRAs, ie, maximum annual contribution of $5,500, requirement of a custodian, etc.

In terms of functionality, Digital IRAs have the same rules as any other IRA, with the same maximums and custodian rules. In addition, you can set up your Digital IRA as any other IRA – whether it be Traditional, Roth, SEP or SIMPLE.

5. “In order to open a Digital IRA, you must place all of your retirement savings in cryptocurrencies.”

You do NOT need to do this. A Digital IRA is simply a descriptive name for an IRA that contains some portion of digital currencies in your IRA. It falls under the umbrella of a self-directed IRA, which allows for a broad range of investment options within your IRA. Therefore, you can choose the allocation of digital currencies that you’re most comfortable with.

Several companies offer Digital IRA services. In addition to BitIRA, IRA Financial Group and Goldco subsidiary Coin IRA all offer cryptocurrencies. HonestBlock also offers alternative asset custody solutions dedicated to bitcoin.

Ways Forward

The cryptocurrency market is maturing at a rapid rate, with bitcoin and a handful of altcoins offering the biggest investment appeal. Cryptocurrency regulations have struggled to keep pace with the evolution of the market, but investors are generally in the clear when it comes to generating retirement savings via digital assets. In the United States, bitcoin is recognized as a commodity, making it

Although IRAs are only relevant from the perspective of U.S. investors, cryptocurrencies have clearly entered the discussion on retirement savings. Before integrating cryptocurrency into your retirement portfolio, it’s important that you get up to speed on all the regulations concerning digital assets in your jurisdiction.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.5 stars on average, based on 406 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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How to Buy Bitcoin Anonymously

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anonymous

As we have previously written about on Hacked.com, many people hold the false belief that bitcoin, by its very nature, is anonymous. However, as transactions recorded on the blockchain are available for anyone to see, this is not entirely true.

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Still, the biggest issue when it comes to privacy arises when someone wants to buy or sell his or her bitcoins for fiat currency. Going through an exchange requires an often lengthy verification process where you need to upload things like your passport, proof of residence, bank statements, etc. It is really a far cry from the privacy that bitcoin and cryptocurrencies were envisioned to offer.

Fortunately, we do have a few solutions to this problem. In this article, we will guide you through four of the ways that exists for buying bitcoin anonymously, either online or offline.

1. Using a bitcoin ATM

With the number of bitcoin ATMs currently exploding, buying bitcoins through an ATM is perhaps the most obvious option for anyone wanting to avoid all the requirements that come with traditional fiat to bitcoin trading.

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The catch with this option, though, is that there is usually a buying limit of around USD 750 before you need to present your ID. However, as long as you stay below this amount for each transaction, your purchase will be completely anonymous.

As bitcoin ATMs are still not very commonly found, you do depend on having one nearby. Currently, about 75% of all bitcoin ATMs in the world are located in North America, with some also found in major European cities.

2. Buying bitcoin peer-to-peer

By far the most popular peer-to-peer bitcoin trading platform out there is LocalBitcoins. Using this platform, you often have the option of meeting up in person with a specific seller who is willing to trade is bitcoin for cash in your local currency. LocalBitcoins have sellers listed in more than 10,000 cities across the world, so there are good chances you will find someone not too far from your location.

All you need to do to start using LocalBitcoins is to sign up on their website with an email address and username, and then start looking for people who are willing to sell bitcoin to you in your area.

Make sure to check the reviews of a seller before you agree to make a trade. Sellers with plenty of good reviews are safe to use, but you should be careful buying from sellers with few or no reviews. There have even been cases where people have been fooled into traps by undercover police officers posing as sellers in countries where crypto trading is illegal or requires a license.

3. Use a prepaid debit card

In the US and some other countries, it is possible to walk into any convenience store and buy a prepaid debit card that you can load up with cash over the counter. You can then use the same card to buy bitcoin on any fiat-to-bitcoin exchange such as Coinbase or Kraken in just the same way as you would have done if you used a debit or credit card from your bank.

This may be a less convenient option, but if there is no bitcoin ATM or LocalBitcoins sellers nearby, using a prepaid card may be your best shot.

4. Using a decentralized exchange (DEX)

Perhaps the most anonymous way to buy bitcoin online is to use a decentralized exchange, something most people in the world of cryptocurrencies are not very familiar with yet.

Decentralized exchanges are largely a new concept, but they are by many seen as the future of bitcoin and cryptocurrency trading. However, current platforms are still a bit complex for non-technical users, but this is a field that is quickly moving forward. Binance, one of the biggest cryptocurrency exchanges today, has even said that they are working on a decentralized exchange expected to be launched in the not-too-distant future.

One such platform already in operation is Bisq, and another option is AirSwap. Both are early players among decentralized exchanges, which is an area that is inevitably set for growth in 2018.

When using Bisq, no ID verification is necessary and the exchange does not hold any of the user’s funds, which also makes it a much safer choice than traditional centralized exchanges. To buy bitcoin using this service, you would make a cash deposit equal to the amount of bitcoin you wish to buy, and then contact a seller directly. Lastly, an escrow service is used to ensure sellers get paid the cash and buyers receive their bitcoin.

Featured image from Pixabay.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.3 stars on average, based on 32 rated postsFredrik Vold is an entrepreneur, financial writer, and technical analysis enthusiast. He has been working and traveling in Asia for several years, and is currently based out of Beijing, China. He closely follows stocks, forex and cryptocurrencies, and is always looking for the next great alternative investment opportunity.




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How to Sell Bitcoin

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Generally, bitcoin investors are split into the buy-and- hold variety and the speculators. As one would guess, the buy-and- hold crowd intends to hold their bitcoin for a long period of time, but if you’re a speculator, you could want to get rid of it as soon as you achieve your desired returns. And if you do decide to sell it, there are two main ways you can go about doing this: online or offline.

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Sell Via a Trading Exchange

The most likely option is to sell via an exchange. This is probably the same way you initially bought your bitcoin too, so it would be easy to set up. What you are doing here is converting your bitcoin back into a fiat currency before transferring that currency into your day-to- day banking account.

The exchange takes the Bitcoin off your hands and it is all done near instantly. Just like any other market, a buyer and seller are connected, but this happens much faster than the direct trade option. The result will probably be a higher fee for lower time invested on your part. Fees are generally broken down into withdrawal/deposit fees and then transaction fees, and you should do your due diligence before you waste too much money on these fees.

Another interesting business model for selling bitcoin is to do it via a peer-to- peer marketplace. These marketplaces connect buyers and sellers based on their mutual needs. The way it is set up, someone with Bitcoin is put in touch with someone who wants Bitcoin, and they engage in a bit of a complicated maneuver. The person who wants Bitcoin buys the seller something with their fiat currency, and is then transferred the appropriate amount of Bitcoin from the other person.

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Physically Selling Bitcoin

One of the top reasons people perform physical trades of Bitcoin is to avoid the hassle of dealing with regulators. This isn’t to say they are committing illegal acts, it’s just not easy to get through all the regulations which are currently in place. Banks are petrified of regulators and stay away from cryptocurrencies as a result. It also isn’t cheap to deal with the banks. Wire transfers and other money moving methods cost a decent chunk, so online withdrawal can lead to some memorable problems that push users towards the physical side of the industry.

When selling Bitcoin in person, the overall mechanism is the same as selling anything else. The only catch is that it is a lot harder to verify the trade, which leaves open the possibility for fraud. In the best case scenario, you are dealing with family or a friend, so the trust factor of this transaction is not an issue.

Using a Local Service

If you are selling to an absolute stranger over an exchange like Localcoins.com, you will need to agree on a few terms ahead of time. This could mean dictating a price that day, or it could mean choosing the exchange which the transaction price will be based off of. Remember that the cryptocurrency is still very volatile, so price swings are to be expected. This is why terms should be agreed upon way in advance.

Meetups are a safer alternative to meeting new people in areas you are not familiar with. These groups will usually have a few members who are looking to sell some Bitcoin or at least have some friends that will. This is the value of community. Just make sure you stay safe and perform all your transactions in a public place. You wouldn’t go around with a $10,000 good on you, so don’t do the same thing with bitcoin.

Bitcoin ATMs

The other physical option you can pursue is cashing your Bitcoin out at a cryptocurrency ATM. These are present all over the world and are popping up with a higher frequency as time goes on. The major benefit to this method is not having to deal with multiple fees. When you convert your money back into fiat currency online, you usually need to send it to a separate bank account at the end before you can access it. An ATM works to directly charge your wallet and save you this trouble.

Conclusion

Each method has its own positives and negatives, but as long as you register them both, you won’t have a problems getting rid of your coins. Selling them online often results in significant delays, but doing it in person means you have a security risk and have to go through more effort. The industry is expected to evolve, and it will eventually be easier to sell Bitcoin, but for the time being, most innovators are focused on making buying Bitcoin easier. These are your best options for now.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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How to Spend Bitcoin

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Exit strategies of cryptocurrency

So you’ve owned bitcoin for a while and have even made a little money on it. It has been fun watching the market value of bitcoin go up, but now you need to buy a few things and don’t have any fiat currency. This means it’s time to spend your bitcoin.

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There are major paths to spending your bitcoin. You can either find a place that directly accepts cryptocurrency, use a wallet that converts the cryptocurrency to fiat currency before paying, or convert your cryptocurrency back to fiat currency yourself before paying.

Find a Place that Accepts Bitcoin

As simple as this sounds, bitcoin is still not widely accepted by merchants, online or brick-and-mortar, in the world. You will have to seek out merchants who accept bitcoin and then hope they have what you’re looking for.

In addition to simply paying for a good or service, you could trying gambling or donating your bitcoin. Casinos have started permitting deposits using bitcoin, and the result has worked out relatively well so far, so this is expected to continue. Donations are possible for certain charities,

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Paying Online

Merchants such as Microsoft, Overstock, Newegg, and Dell are probably the largest companies who work with bitcoin. The hope is Amazon will begin to accept it in the future, but for now this is a great start and opens up a lot of options for users looking to spend their bitcoin.

The biggest reason why these companies are willing to accept it is it is an appreciating good and there are lower fees than if a user buys something with a credit card. Credit card companies take a percentage cut which hurts the company in the long-run. In this sense, bitcoin is disrupting those companies as well.

In terms of large platforms, PayPal and Shopify both have an integrated bitcoin payment capability. This will have an even larger effect than the previously mentioned merchants accepting bitcoin because of the scalability of the use. It will allow a large percentage of merchants to accept the cryptocurrency with little to no work, and will therefore greatly increase the utility of bitcoin.

Paying in Person

It is rare you will find a store that accepts bitcoin by happenstance. Right now, this occurs more often as a form of gimmick or promotion that will get a store or restaurant publicity. Some places have put out QR codes for tips or donations, but this is the exception and shouldn’t be counted on.

If you are intent on spending your bitcoin in person – meaning you transfer the money directly from your wallet to the merchant’s wallet, then do your research ahead of time. Coinmap.com is a service which provides an aggregation of all the known stores who accept bitcoin.

Use a Wallet

Now that cryptocurrencies have reached somewhat of a critical mass, we are seeing a lot more businesses pop up with the goal of making it easier to spend your bitcoin. There is a huge opportunity in being able to unlock the utility of bitcoin as a medium of transfer, and these businesses are working on doing just that.

Companies like TenX and Monaco whose sole goal is unlocking the spending power of bitcoin. These companies work to integrate their platform so when you use their version of a credit card, it converts your cryptocurrency into the appropriate currency and spends it. Their product depends on cheap conversion fees and maximum convenience.

Even if you had never held bitcoin before, having a credit card that could spend your money in the appropriate fiat currency and minimize your fees would be a superior value proposition. These companies know what ails most consumers and want to make it easier to manage all your finances in a centralized manner.

Basically, they are using the opportunity afforded by cryptocurrency’s inconvenience to leverage their platform so they can replace the service offering of big banks. By providing flawless currency management, helping to manage spending, and enabling frictionless instant payments, they become the best option in the market.

Convert it Yourself

Sometimes the easiest way to spend your bitcoin is to just convert it back to fiat currency and spend it yourself. This would be done over an online exchange, but requires less of a time investment and is more convenient. You will have enjoyed an increase in the market value of your investment, and even though this might be the most inefficient in terms of transaction fees, it gives you the most freedom to spend your cryptocurrency on whatever you wish.

Conclusion

Every day it becomes slightly easier for you to spend bitcoin. Businesses want to make it as easy as possible for people to pay with it, not to mention the fact that it doesn’t cost them as much as if you were to use credit cards. Online payment processors and wallet start-ups are both working to make it a simpler process to utilize bitcoin freely. As a result, a few years from now you will probably find there is minimal friction when you go to spend bitcoin. In a way, this is what technologists mean when they talk about bitcoin being widely adopted.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Hacked.com and its team members have pledged to reject any form of advertisement or sponsorships from 3rd parties. We will always be neutral and we strive towards a fully unbiased view on all topics. Whenever an author has a conflicting interest, that should be clearly stated in the post itself with a disclaimer. If you suspect that one of our team members are biased, please notify me immediately at jonas.borchgrevink(at)hacked.com.

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