In this article, we’ll explain how you should buy Bitcoin if you’re a Millennial.
The cryptocurrency exchange Coinbase is increasing in popularity among Millennials. Coinbase has approximately 20 million users valuing at roughly $20 billion. This is far less than the 7.6 trillion of assets Fidelity manages based off the same accounts. In other words, many accounts being opened at Coinbase are for less than $1,000. This includes many accounts that Millennials own.
Don’t Buy Bitcoins with Private Funds
Many investors believe that Coinbase is among the friendliest options for newbies to buy crypto. It currently offers buying and selling of Bitcoin, ether, Litecoin and bitcoin cash. Many millennials would use personal funds with a debit or credit to make cryptocurrency purchases.
Purchasing bitcoins via credit and debit cards is popular and convenient. However, convenience comes with a price. Most cryptocurrency exchanges will change around charge around 4% for card purchases. Additionally, gains on the sale of cryptocurrencies using a debit or credit card are subject to tax.
The IRS Stance on all Digital Currency
Many retirement account investors consider Bitcoin “cryptocurrency”, but the IRS doesn’t consider it as a “currency.” In March of 2014, the IRS came out with a notice that revealed its stance of digital currency.
The notice states that bitcoin and other cryptocurrency will be viewed as a capital asset for U.S. federal tax purposes. The same tax principles that apply to property will also apply to digital currency. Because it’s seen as a capital asset, it will be subject to ordinary income tax rates if the asset is held in an account longer than 12 months. To the IRS, currency is property.
It’s important for millennials who want to buy Bitcoin to know the current IRS stance. However, there is a way around this.
How Millennials Should Buy Bitcoin
Instead of using a debit or credit card, a Millennial should buy Bitcoin using a Self-Directed Roth IRA. As a result, you will not be subject to tax on any gains. Imagine if a Millennial were to buy bitcoin in 2017 with a Self-Directed IRA. That Millennial investor would be able to shelter most of the $1,300 of built-in gains with a Self-Directed Roth IRA.
2018 Roth IRA
In 2018 the Roth IRA contribution limit is $5,500 or $6,500 if over the age of 50. With a Roth IRA, contributions are after-tax. However, if you have the Roth IRA open for over five years and you’re over the age of 59 1/2, all distributions are tax-free. Again, this is only in the case of a Roth. With a Self-Directed IRA, gains will be tax-deferred.
Millennials should buy Bitcoin with the Self-Directed Roth IRA because it’s the most popular way you can use retirement funds to buy cryptocurrency. The primary advantage is that all income and gains with the Self-Directed IRA investment grow tax-deferred or tax-free.