Index funds have more than proven their worth as
a preferred option for those with an eye on retirement. But now there is
conversation about the value of adding bitcoin and other cryptocurrencies to
this investment mix.
Given crypto’s volatile nature to date, risk
tolerance is obviously a factor to consider for any financial portfolio.
Juxtapose that with those investors who are in position to risk a potential
loss, and Bitcoin’s value proposition as a key of any retirement portfolio looks
a more bit promising.
Much of this talk comes as individual retirement
accounts (IRAs), which allow participants to tuck away funds for retirement in
a tax-advantage vehicle, are garnering increased attention.
With increasing numbers of sophisticated IRA
investors seeking to diversify their retirement account holdings into
nontraditional assets, it should be no surprise that cryptocurrencies are now
part of the conversation.
With an eye on these emerging trends, the
Westlake, Ohio-based Equity Trust Company, a financial services
firm with $25 billion in assets under its custody (as of December 2017),
recently launched a digital asset platform which allows the firm’s retail and
institutional clients to invest in cryptocurrencies.
Charting
the Advantages
Equity
Trust clients have shown a long commitment to retirement portfolio
diversification through the use of alternative assets, including real estate,
tax liens, private equity and precious metals. Through the use of self-directed
retirement options, investors are afforded even greater freedom over their
financial future.
The
Equity Trust Digital Asset Platform is the most recent in a series of tech
advancements made by the company, allowing individual investors to add
cryptocurrencies to their investment mix. Replete with a user-friendly
interface for both individual investors as well as advisors representing
clients, users are able to initiate orders for cryptocurrency utilizing
tax-advantaged IRA funds.
The
platform allows investors to sell and purchase bitcoin, ether, bitcoin cash, ether
classic, XRP and litecoin in a way that allows next-day cash availability for
sale transactions. All cryptocurrency sale/buy orders are facilitated by a cryptocurrency
exchange. Long-term storage of cryptocurrency takes place by way of “cold
storage” facilities, known as an effective mechanism for mitigating consumer
risk associated with holding their own digital keys.
A key
value proposition for considering adding crypto to an IRA is that if Internal
Revenue Service (IRS) guidelines are adhered to, taxes are deferred. In other
words, there are no immediate tax implications.
By
way of example, bitcoin set aside into an IRA account during the 2017 financial
boom would have experienced no taxes on those holdings. Rather, those taxes would
have been deferred until retirement — when a client is presumably in a lower
income bracket.
Dave Allen, Equity Trust’s chief operating
officer, explained the main factors leading to the company’s pursuit of the
intersection between IRAs and cryptocurrency.
“It was tied to the demand from our existing clients,
institutional partners and prospective clients who were investing in
cryptocurrency,” Allen said. “Equity Trust wanted to simplify access to this
emerging asset for investors interested in using their IRAs.”
Many investors do not realize that it’s possible to use a
retirement account to invest in cryptocurrency assets. The same potential tax
advantages that IRAs provide for stocks/mutual funds apply to any asset held in
the IRA as long as an account holder follows IRS guidelines.
Allen said that Equity Trust hopes to bring
greater awareness to cryptocurrency investors around the possibilities of using
IRA/retirement funds to invest in cryptocurrencies.
“We’re investing in technologies that align with our broader
strategy of delivering innovations and industry-leading capabilities to speed
up and simplify the process of investing in a wide range of assets with
retirement accounts,” he said. “Our goal is to continue to be leaders in the alternative
asset custody space — whether the asset is cryptocurrency, real property or
private equity.”
Equity Trust Company is a passive custodian and does
not provide tax, legal or investment advice. Any information communicated by
Equity Trust Company is for educational purposes only and should not be
construed as tax, legal or investment advice.
Note: Trading and investing in digital assets is speculative and
can be high risk. Based on the shifting business and regulatory environment of
such a new industry, this content should not be considered investment or legal
advice.