Everyone wants to retire one day. That’s why people are cutting all their expenses and working harder, hoping to have enough money to enjoy life. However, not everyone has the proper financial knowledge to accumulate the money they need.
Have you ever thought about the possibility of having an IRA (Individual Retirement Account)? The primary function of IRAs is to accumulate money for retirement? One of the most discussed investment options among the cryptocurrency community is whether investors should invest in Cryptocurrency IRA or traditional IRA.
Read on from this post to find more information on the two IRAs
Differences Between Cryptocurrency IRA vs. Traditional IRA
The Form of Investments
Cryptocurrency liquidity investments are new and hence unpredictable, which may make them risky but at the same time offer high-profit potentials if done correctly. In comparison, traditional IRAs deal with conventional investments such as real estate and stocks that have been tried and tested over time to guarantee high returns on investment.
Taxation rules
Another significant difference between Cryptocurrency IRA vs. Traditional IRA is the taxation rules, which vary based on their nature of investments. In Cryptocurrency IRAs, investors are not subject to taxes until they withdraw their funds from the account. In contrast, in traditional IRAs, investors must pay taxes even when they invest in the account or when they withdraw funds from it.
Liquidity
Cryptocurrency IRAs have greater liquidity than traditional IRAs since the same rules regarding withdrawals do not limit them. There is no limit on how much you can withdraw if used for qualified purposes like paying for med school, buying a home, or paying off debt.
Diversification
With a cryptocurrency IRA, your investments in various digital currencies ensure that you get more diversification than with a traditional IRA.
Similarities Between Cryptocurrency IRA vs. Traditional IRA
Tax Benefits
The tax benefits of an individual retirement account are similar no matter what kind it is. You will pay taxes on your profits, but not before then. Both types of IRAs are retirement savings products for individuals aged 18 or above. There are some differences to consider.
Regulation
Both types of investments are regulated by the Internal Revenue Service (IRS) regulates both types of investments and can be held in Individual Retirement Accounts (IRAs). The IRS allows IRA investors to use their IRAs for almost any type of investment, including real estate, promissory notes, mortgages, CDs, and even some stock options.
Additionally, if you contribute to an IRA before the age of 70 1/2, the IRS will not tax your earnings until you start taking distributions from your IRA.
Which one brings better profit?
The answer to which is a better investment, cryptocurrency IRA or traditional IRA, depends on multiple factors and may not be cut and dried. The fact that you have time to invest makes a big difference in the long run. You will earn 5% in interest for the years you have to contribute to your traditional IRA, whereas the crypto market fluctuates day by day.
For example, in 2017, Bitcoin appreciated more than 1520%; if you had invested $100 at the beginning of 2017, you would have earned $15,200 at the end of 2017. However, you would lose 10% out of it over this period because of the several drops of bitcoin during the year.
Wrap Up
Your retirement investment is a smart move. You give yourself the chance to save for your retirement. Both of these options can be profitable. However, the cryptocurrency offers a chance at growth that cannot be found in traditional IRAs.
So if you’re choosing between the two, it is worth considering which one will make you money faster. Crypto IRAs give you the direct opportunity to profit off cryptocurrency as well as have a tax-deferred retirement account. Traditional IRAs only offer long-term growth potential with no guaranteed interest rate return.
