Introduction
When it comes to retirement, we need to start thinking about it sooner rather than later. However, this can be difficult at times. Especially because we don’t seem to be taught much about it in school, be it high school or at a college or university. That’s a real shame, since it’s such an important part of our later lives.
This all means that we need to take our education on these matters into our own hands. There are a lot of different types of retirement funds that we can have, but for the purpose of this article I will be discussing two kinds of IRA accounts. First, I’ll consider Roth IRAs, then Crypto IRAs.
What is a Roth IRA?
Now, before I can discuss the difference between roth ira and a cryptocurrency ira, I need to explain what a Roth fund is and how it works. They are individual retirement accounts for you to put money in. Notably, the income added is taxed at the moment of deposit – that means that as it grows, no further taxation is applied.
This includes when you withdraw from it later in life, meaning it can have some serious advantages for certain taxpayers. It will definitely depend on where you see yourself in a few years. If you are not sure that you will enter a higher tax bracket post retirement, it may not be necessary for you. However, if you do think that could be the case, choosing a Roth account could certainly be a benefit.
How Does it Work?
Thankfully, it is not too complicated. As I mentioned above, in this type of account, you pay taxes on the money deposited up front. This is different than a traditional type of IRA, in which your withdrawals are taxed. As with most investments, the money placed in the account compounds over time.
One of the other perks to them is that they do not have a required minimum distribution for you if you have an account. This means that you do not have to withdraw any distributions, unlike the more traditional forms of IRAs or 401(k)s.
The Benefits
If you want to read more about these accounts, you can see this helpful guide here: https://www.nerdwallet.com/article/investing/what-is-a-roth-ira. Of course, there are quite a few reasons you may want to form a Roth account. Naturally, the different taxation and lack of required distributions are factors, but there are more.
This is probably the style of account that you may want to start with if you are still young. This is because you are just starting out in your career, so your income at this stage will be taxed at a lower rate. You won’t be punished in your retirement for getting a promotion and earning more money during your career!
The deposits are also quite flexible. You set your own minimum deposits and when you want to put money in. There isn’t an age limit for opening one either, and you have until the tax deadline each year to add to your fund.
What is a Crypto IRA?
Cryptocurrencies have taken the world by storm since Bitcoin was created in 2009. While that is probably the most popular and well known of these digital tokens, there are others out there as well. Some examples are Ethereum or Dogecoin.
If you’re wondering how this is relevant to a discussion about retirement funds, I don’t blame you. Cryptocurrency IRA accounts aren’t exactly common knowledge at this point, despite some of the benefits they can have. Perhaps this is because many of us still think of crypto as a trend – however, it has already proven to have staying power!
These accounts are a form of self-directed IRAs. These retirement accounts enable you to invest in some alternative forms of assets that more traditional accounts may not allow. This can range from real estate to commodities to, you guessed it, cryptocurrency!
How it Works
They actually work quite similarly to a traditional fund. The main difference is that you invest in crypto instead of something like mutual funds. You can read more about them in this article if you’re looking for further information.
Something to keep in mind with this type of fund is that you might have to employ a bit of do-it-yourself research in terms of how to start it. There are not as many brokerage forms that make it easy like other types of IRAs have.
Rather, there are few components to a self-directed crypto IRA. You will need to find a custodian – this is what holds the IRA (rather than a bank or other financial institution). The custodian is meant to ensure that you still follow regulations, but they cannot provide financial or investment advice.
As far as cryptocurrency trade goes, you will need to find an exchange. It is in these markets that you will do most of your business. While it is similar to a stock market, it isn’t exactly the same, because no government agency manages it. Instead, it is sort of a Wild West of investing.
Of course, you will also need a place to store your digital tokens. Many providers of these accounts have secure storage options, but crypto wallets are out there as well. Just look into all of your options and try to decide what might work best for you.
The Perks
Now that you know what they are, why might you consider investing in a fund like this? Well, there are a few reasons – self-directed IRAs might require more work on your part but allow you to diversify your portfolio far more than a traditional type of account. This is particularly true in crypto investing. This way, you are not limited to just one type of coin like Bitcoin.
Another benefit is that there is certainly potential for big returns. While the market is volatile, deciding to get involved now can help to ensure that you will have a secure account for the future!
The Takeaway
When it comes to retirement, you need plan for it sooner rather than later. There are a lot of different types of retirement funds that we can pursue, but an IRA account is one of the better retirement avenues for your future. And whether it’s a traditional Roth IRA or Crypto IRA, both options are worth your consideration.
