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IRA Financial Blog

Made a Fortune in Bitcoin and it is All Tax Free – Episode 260

Adam Talks

IRA Financial’s Adam Bergman Esq. discusses his Bitcoin investment, why he used a Self-Directed Roth IRA to invest and how the gains are completely tax free!

While Mr. Bergman never likes to talk about his investments, he does want to share how he’s made a fortune in Bitcoin and why he invests with a Roth IRA. Bitcoin, albeit a very risky investments, has increased in value throughout the year. As of November 19, 2020, the price of Bitcoin stands at almost $18,000. That’s way up from it 2020 low of under $5,000. Further, Bitcoin is approaching it’s all time high of just over $19,780. Despite the COVID-19 pandemic, Bitcoin remains a strong investment.

Bitcoin and Taxes

One of the major issues with investing in an asset such as Bitcoin is the tax implications. It’s very complicated when it comes to figuring out what each “Bitcoin” is worth when you bought it and when you sell or spend it. Further, the type of capital gains you pay depends on how long you have owned a particular coin. Note: we use the term coin, even though there are no physical Bitcoins.

For example, let’s say you bought one Bitcoin when it was worth $1,000 and decided to sell it years later when it was worth $15,000. You will own long-term capital gains tax on that sale. It gets complicated since the price of Bitcoin is always changing. Let’s say it grew to $2,000 per coin and you sold that for $5,000 just six months later. Now, you would owe short-term capital gains. Just think how complicated it would get if you were buying, selling or trading Bitcoin, or other cryptocurrencies, on a regular basis. You need to keep track of every investment, and compute the taxes due on each transaction.

Of course, you can hire someone to do that for you, but, that’s another expense for you. However, what if you didn’t have to do all that? What if the taxes didn’t matter (at least on a transactional basis)? Well, this is where it matters how you invest in Bitcoin. For more info about investing in Bitcoin, click here.

Using Retirement Funds

Making a fortune in Bitcoin is not a get-rich-quick scheme. Many people look at virtual currencies as a fad. However, they have proven, especially during these rough economic times, that they are here to stay. The technology behind them, and the way they are used may be the future of buying and selling goods and services.

Since the IRS considers Bitcoin and other currencies an asset, you can invest in them with retirement funds. Doing so means you don’t need to worry about taxes on an annual basis. This is because investments held in retirement plans are not taxable. You either pay taxes before you contribute money to the plan, or pay them when you take money out. All those years in between, your assets grow without tax.

Therefore, using a retirement plan to invest in Bitcoin is the way to go. You should be warned, that you can’t just go anywhere and invest in cryptos with just any retirement account. Most banks and large plan providers think alternative assets, especially cryptos, are not worth the risk. This is where the self-directed retirement plan comes into play. Anyone with the earned income can open and fund a Self-Directed IRA. Further, if you are self-employed, you can contribute to a Solo 401(k), which offers numerous benefits. Since these plans are “self-directed,” you get to choose what you want to invest in.

Why Go Roth?

As Adam explains in the podcast, the absolute best way to invest in Bitcoin is through a Self-Directed Roth IRA. There are two key components – self-directed and Roth. By self-directing the plan, Mr. Bergman can invest in whatever he wants, so long as it’s not prohibited by the IRS. By using a Roth IRA, all the gains on investments are tax-free!

Again, you need patience to invest with a retirement account, especially a Roth IRA. Roth plans are funded with after-tax money, but you cannot receive the tax benefits if you try to withdraw those funds too early. You must wait until you are at least age 59 1/2 and the account has been opened for at least five years. Retirement plans are there to help you save for the future, therefore there are penalties for taking money too soon. Plus, if you withdraw earnings from the Roth before it’s allowed, you will pay taxes, too. This mitigates the whole point of the plan.

Therefore, if you can wait to take full advantage of the plan, anyone can make a fortune in Bitcoin and all the gains will be tax-free! Of course, this type of investing is not for everyone. You must understand the risks investing in Bitcoin and be patient. You don’t want to risk your entire retirement plan, so it’s best to only invest as much as you are comfortable in losing. No one knows where Bitcoin may end up in a year or ten, but the sky’s the limit.

Related: Opening a Self-Directed IRA for Bitcoin

Invest Wisely

It’s important to remember that IRA Financial, nor Adam Bergman, are telling you to invest in Bitcoin, or any other asset for that matter. This podcast series is all about educating. It’s up to you to do the research to see if Bitcoin is a type of investment you want to make. Lastly, it’s important to work with a financial planner to decide the right path.

As always, thanks for watching. You can find all Adam Talks episodes on our SoundCloud page. You can also find it on your favorite platform like iTunes, Spotify and Stitcher.


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