Crypto In a Roth - I'm trying it

[JaxRed]

I mentioned in the Bitcoin thread that I was going to try and put some Crypto in a Roth IRA. I've started that process. I thought this was different enough from just investing in Crypto that I'd give it it's own thread. If the mods disagree. feel free to merge it back. My feelings won't be hurt.

I try do essentially all my investing in Roth's. I own about $11K worth of Crypto that is not in a IRA. Not really investing money to me. It's hi tech gambling money. Yet...... if it paid off, I'd still like it to be within the Roth framework so it's tax free.

I bought $925 worth as a "stick my toe in the water" thing in Aug 2017 at Coinbase. Split between Bitcoin and Ethereum. Bought Bitcoin at about $3,000 and Ethereum at $315. As I write this Bitcoin is $42,671 and Ethereum $2,965. As another "learning experience" I sold almost all my Ethereum a few months later. Ooops.

And then just a few months ago I started buying Ethereum again, this time at Paypal. I'm down so far on that. So all told I've got about $11K worth of crypto.

But if my Crypto really went to the moon as they say, I'd sure prefer it would happen with a Roth. I'd heard it was possible so I started exploring.

[JaxRed]

Some CPA named Mark Kohler on You Tube has videos on putting Crypto in a Roth and that's where I started. I learned a couple things right off the bat.

1) It has to be a Self-Directed IRA or Self Directed Roth IRA.
2) There has to be a certain "arms length" nature to it. In the past that meant creating an LLC within your self-directed IRA. Then the LLC would buy the crypto. Now it's been more streamlined.
3) These Self-Directed IRAs can have crazy high fees.

The fee thing was a big driver for me. And the lowest fees I could find were at a place called Alto IRA. They don't charge you to fund your account (trust me some do!), and the 1% maintenance fee is capped at $25 per month. For me initially it's going to be about $10 monthly.

Today I started the process. Starting the account was pretty darn easy. All online and maybe took 10 minutes. I've initiated the ACH transfer of $7K for this years IRA contribution. There was no option to send in a check or use a credit card. So waiting for it to "fund".

The arms length thing with Alto is that I create an account with Alto and Alto creates an account in Coinbase for me. But it's not my account. I can't get to it. Only Alto can.

[OldFashionedRed]

I've always believed that if some financial guru says to do this or that, a wise person will do the opposite.

[JaxRed]

I've always believed that if some financial guru says to do this or that, a wise person will do the opposite.

And that is why you are independently wealthy.

[JaxRed]

OK, I'm in the no man's land of financial transfers. The $7,000 has left USAA as of this morning but has yet to show up at Alto. They estimated funding to take 7 days. Why these things aren't instantaneous these days.....

[JaxRed]

The Eagle has landed. My $7,000 is now at Alto, Will buy some stuff tonight.

[JaxRed]

Tried to trade. Said IRS rules allow me 7 days to get my money back, so they don't let me trade for 7 days. On hold.

[JaxRed]

Alto has actually done a good job keeping me advised via email on the status of things. They sent me an email today saying I could trade. So I did. I bought $6,000 of Bitcoin. I've saved $1,000 so I can buy some altcoin like Cardano. Will probably do that tomorrow.

Bad news about fees: I knew they did it, and I won't be trading much, but the trade fee was 1.5% so it cost me $90 to buy.

Good news about fees: Effective today they've eliminated any monthly fees. So that saves me $10 or so a month now (and maybe more later).

[Redsfaithful]

Curious Jax, why not get into DeFi?

[JaxRed]

Curious Jax, why not get into DeFi?

Honestly because I know NOTHING about it. I think it might be a crypto lending outfit. I'll gladly accept a paragraph as to how they work. I'm clueless.

[Redsfaithful]

Honestly because I know NOTHING about it. I think it might be a crypto lending outfit. I'll gladly accept a paragraph as to how they work. I'm clueless.

Please do not take my word as the final word of course, I'm not expert, but it's basically just blockchain based financial products that run via smart contracts. This isn't something you can do with bitcoin, but any crypto that can do smart contracts, like ethereum works. Solana is another I've been very into lately.

Like most things crypto, there can be a tremendous amount of risk, particularly if you are really aggressively chasing yield, but it's not too hard to find what I would consider safe places to park your money (for crypto) that will return 10%+ APR.

This is a really good, more thorough explanation:

https://ethereum.org/en/defi/

Particularly this part:

https://ethereum.org/en/defi/#investing

[bucksfan2]

I am curious as to why you are buying Crypto in a Roth? If you don't mind, what percentage of your portfolio are you devoting to Crypto?

I have never gotten into crypto with the exception of a couple hundred dollars. It never met what I was looking for with an investment, mainly gambling.

I really don't care one way or the other, it would seem with the volatile nature of crypto, in a roth you are missing out on the ability to tax loss harvest if things go haywire.

I am probably 1000% wrong on this one, but the shoot for the moon time frame has probably passed, it will be volatile, and probably won't outperform the S&P over a given period.

[gonelong]

I am curious as to why you are buying Crypto in a Roth?

My guess is it is because in the ROTH IRA we don't pay tax on earnings. If you somehow turn $100 into $15M its all yours in a Roth. If you do that in a taxable account, you will probably pay 1/2 of your fortune in tax.

When I take home runs swings, I don't take them in my taxable account or 401K - I take them in my ROTH.

GL

[JaxRed]

I am curious as to why you are buying Crypto in a Roth? If you don't mind, what percentage of your portfolio are you devoting to Crypto?

I have never gotten into crypto with the exception of a couple hundred dollars. It never met what I was looking for with an investment, mainly gambling.

I really don't care one way or the other, it would seem with the volatile nature of crypto, in a roth you are missing out on the ability to tax loss harvest if things go haywire.

I am probably 1000% wrong on this one, but the shoot for the moon time frame has probably passed, it will be volatile, and probably won't outperform the S&P over a given period.

I'm an income investor. But I've achieved my income goals. And since I'm not actually tapping into that income, it just reinvests and creates more income. So, yes, I'm at the point in my investments where I can gamble. I actually used the word gamble in my first post. Crypto is a very small portion of my portfolio. I think less than 5%.

My other "gamble" stock is Tesla. I have about $42K of that.

I am more concerned about shielding a big gain than tax harvesting. Since all my stocks are in a Roth, I have no taxable gains to offset.

- - - Updated - - -

My guess is it is because in the ROTH IRA we don't pay tax on earnings. If you somehow turn $100 into $15M its all yours in a Roth. If you do that in a taxable account, you will probably pay 1/2 of your fortune in tax.

When I take home runs swings, I don't take them in my taxable account or 401K - I take them in my ROTH.

GL

Exactly

[Redsfaithful]

B]I am probably 1000% wrong on this one[/B], but the shoot for the moon time frame has probably passed, it will be volatile, and probably won't outperform the S&P over a given period.

It depends a lot on how aggressive you want to get with altcoins and related investments like NFTs. Lot of 10x+ possibilities there. Bitcoin can go up, but at this point a 2x is a $50k+ jump.