Personal Crypto Accounts vs. Roth IRAs as Crypto Retirement Accounts
The difference in taxation between personal crypto gains and crypto Roth IRA gains is significant. Say you bought $10,000 USD worth of bitcoin (BTC) on January 1, 2017 and sold that BTC on August 26th, 2021 for $470,988. How much of that profit do you get to keep on your $460,988 gain? If you bought and sold the bitcoin personally, you’d only get to keep $353,241 of the gain, as you would be paying taxes of $115,247. If you bought and sold BTC in a Roth Bitcoin IRA, you’d get to keep the entire $460,988 gain.
A $115,247 tax assumes a federal long term capital gains rate of 20% and a state tax rate of 5% for a total tax rate of 25%. There are no taxes owed when you sell crypto in an IRA and the gains are designed to come out entirely tax-free at retirement with a Roth IRA.
Retirement Accounts Are For Building Long-Term Wealth
Roth IRA funds generally come out tax-free once the account owner reaches retirement age of 59.5. An investor can access the funds before 59.5 but would be subject to taxes on the gains and will have a 10% early withdrawal penalty to access their Roth IRA gains. As a result, investors using any type of IRA or other retirement account should be looking towards building wealth for the long term.
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