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The Secret to a Crypto Retirement - YouTube
Channel: Max Maher
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What have I told you it's possible to trade
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and retire with crypto tax-free?
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Zero capital gains.
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Well, you're in for a treat.
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Let's talk about crypto retirement accounts
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and how they can save you thousands of dollars.
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And at the end of this video, I'll even give you some
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recommendations and show you how to
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set this up step-by-step.
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We're going to cover
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the traditional IRA
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and the Roth IRA.
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It's important to understand a few
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key similarities and differences
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between these retirement accounts.
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The most important similarity is trading.
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Trading within either a traditional
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or a Roth IRA is not a taxable event.
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I can't stress this enough.
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Short term capital gains can be as high as 37%,
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meaning if you profited $1,000 on a trade
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up to $370 can go to Uncle Sam.
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That same trade in a Roth retirement account has
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tax of $0, and that's why you need to watch
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through this video and ensure you understand the rules.
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The most important difference between these accounts is
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This is important.
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Traditional IRAs are called tax deferred,
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which is a fancy way of saying
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you don't pay income tax on funds
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added into the account.
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You only pay tax on earnings when you
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pull out in your retirement after
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age 59 and a half.
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These earnings are taxed as
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income at that time.
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The idea is if you defer your taxes to your old age,
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you'll pay a lower income tax rate
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because you're no longer in your
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prime earning years.
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On top of this, in some cases, your
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contributions to a traditional Roth
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are totally tax deductible,
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meaning you save on tax
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for helping out out your future-self.
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Roth IRAs, on the other hand, grow tax free.
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This means you pay regular income tax
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on funds added to the account,
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but then you pay nothing when you pull
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funds out out at retirement again
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after age 59 and a half.
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So let's say you added $1,000 to your Roth IRA,
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and it grew to $10,000 at retirement.
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You would pay your regular income tax
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on that $1,000 now
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and $0 on the $9,000 in gains
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at retirement.
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This is what Peter Thiel did, and he now has
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$5 billion in one of these accounts, tax-free.
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Work in the system.
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Now, the type of IRA that you choose
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really depends on two things.
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First, how much money you earn per year,
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and second, what you expect your tax to look like
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in retirement versus what they are today.
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Meaning how much you expect to earn
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when you're in your retirement because that
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changes your tax rate.
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Both types of IRA can contain
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several kinds of investments,
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but they must be funded with cash,
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or you can transfer one account from
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one brokerage to another.
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Now, the real strategy here
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is you can stack something on
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top of your traditional Roth or your Roth IRA,
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and that's called a self-directed IRA,
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or SDIRA for abbreviation.
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This is where you, as the investor, have
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full control over how your assets are managed
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and when they are bought and sold.
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And this means that you can add
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crypto to your account.
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This also means that you won't have someone like
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Vanguard making investment decisions for you.
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Now, doing this can get a little bit risky,
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and it's not wise to put your entire retirement
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into crypto.
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I would never recommend that.
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Actually, none of this is financial advice.
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But it's always best to diversify with
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your life savings.
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We can all agree on that.
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The way I look at these accounts is they are
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and you believe in crypto long term,
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you just want to sprinkle some crypto on top
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or if you're a trader
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because there's no capital gains
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and you can make all the trades you want.
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If that's the case, it's really a no-brainer
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because you're just saving money.
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All right, now what you're here for,
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How the massive tax savings really work?
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Let's break this down.
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Anytime you sell your crypto assets,
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that's considered a taxable event,
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if there's profit.
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If you bought and sold your crypto
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within the same year,
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your earnings, assuming that you profited,
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are taxed like ordinary income.
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This is short term capital gains.
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And as you know, income is taxed using
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this progressive tax system.
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How much you pay in tax on your
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short term crypto gains varies
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depending on your level of regular income.
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Conversely, if you sell your crypto
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over a year after you purchased it,
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these are taxed at
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long term capital gains rates, which start
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at $0 for your first $41,675 in 2022.
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Once your proceeds go beyond that,
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your taxed either 15% or 20%.
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So you can escape crypto taxes,
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provided that you don't sell over
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40 grand of it from the previous year,
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and they are in the long term capital gains bracket.
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But if you're planning to use your
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crypto earnings to retire, your long term positions
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could quickly go past those minimums.
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For example, if you held onto $10,000 in ADA,
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and that grew to $100,000
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in the time it takes you to retire,
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you'd have $90,000 in profit.
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If you wanted to sell all of that,
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you're paying Uncle Sam over $7,000 in tax,
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on top of the income tax
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you paid on the original $10,000.
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And we can simply do better than this.
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This is where IRAs come in handy.
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Let's take a look at what this would look like
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with both a traditional IRA and a Roth.
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Using the same example,
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let's say you open an account
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with an IRA custodian and bought your
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$10,000 in ADA through that account
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over two years.
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Now, I say "over two years"
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because you can only contribute
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$6,000 per year to these accounts.
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If your account follows traditional IRA rules,
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meaning that's potentially
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ten grand that you can just take off your tax report.
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Of course, confirm this with your CPA,
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and you can spend that money on crypto instead.
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You will only pay tax once you sell
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at retirement, which can be a lower rate
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depending on your income at retirement.
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Or more simply, your account might follow
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Roth IRA rules, in which your contributions are
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taxed upfront and not a tax write off,
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but they are tax-free if you withdraw
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after the age of 59 and a half.
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Although it is worth noting
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that you can start withdrawing
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from the account at any time before
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age 59 and a half without taxes
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or other penalties, as long as you
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don't exceed the amount that you originally put in,
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since you already paid tax on that money.
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Profits: Different story.
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Under Roth IRA rules,
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you would pay income tax
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on your original $10,000
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before you put it in,
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but $0 on the $90,000 in gains.
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Huge savings.
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So you can see that this really adds up to
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a massive amount of savings if you plan on
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being a successful crypto investor.
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It's up to you if you plan on that.
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[Laughs] Now, like I mentioned, most
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Bitcoin or Crypto IRAs are self-directed.
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Most banks and institutions actually
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don't want to accept crypto
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into traditional IRAs because of the
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fees that they earn on traditional investments,
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fees that they'd have to forego
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for alternative assets.
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Because of this, the industry for self-directed IRAs
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has developed substantially in recent years
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for the purpose of attracting crypto investors.
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Aside from the types of assets that you can acquire,
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there's a difference in how you manage
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your self-driven crypto account,
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so we need to briefly cover this as well.
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You need a custodian for your crypto IRA
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and the assets within the IRA.
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I'll recommend one in a second.
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A good custodian will help
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make sure that your assets are kept safe,
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and they'll also help to make sure
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that your account follows the
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ever changing laws by the IRS.
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That way, you don't have to read through any bill text.
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They'll do that all for you.
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If your main goal is to invest in crypto
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long term, it's best to go with a crypto
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IRA service with low trading and membership fees,
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you'll always want to look.
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Now, I've looked into many of
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these services who do this,
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and it seems iTrustCapital is the
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easiest to use and they have the most
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competitive fees.
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Other options include Directed IRA and Alto,
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but I actually liked iTrust so much
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that I reached out to them personally
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to be an affiliate.
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Here you can see the opening an account takes of about
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a minute and if you use my link
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in the description, you'll actually get
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$100 in free Bitcoin
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just for opening an account.
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The offer is limited, though,
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so just make sure you grab it
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quick if you're interested.
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You can fund your account either with cash
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or a transfer from an existing Roth,
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whatever is applicable to you,
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and you can buy and sell directly on the
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platform with a variety of cryptos.
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Now, as always, we need to talk
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downsides and considerations.
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The first is capital losses.
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If your cryptos drop in value
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by the time you sell,
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your net loss can be used to
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deduct taxes that you owe for that year
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and subsequent years, depending on
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how big your loss is.
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However, if you're investing
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through an IRA, these losses are just gone.
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This means you can't tax loss-harvest
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through one of these accounts,
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and we also need to talk about the five-year rule.
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Generally, this means you can't withdraw
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profit from your account
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before you've held it for at least
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five years and
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before the age of 59 and a half years old.
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So if your crypto holdings within your
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IRA shoot up in price
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and you want to cash out
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completely into your bank account,
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you can't do that unless you pay a
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10% penalty, possibly on top of your regular
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income tax rates on your withdrawal.
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If you buy a crypto in your Roth
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that explodes in growth and you just
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trade that to another crypto within your Roth,
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this is totally fine
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and you will still save on your capital gains.
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There'll be no capital gains.
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You just can't pull those profits.
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into your bank account without penalty.
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Now, I still think it's best to diversify your
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retirement accounts as
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However, if you're a regular crypto trader
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or you'd like some crypto to be held
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very long term term with tax benefits,
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then a crypto Roth is an amazing option to
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help you beat the system.
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And again, If you'd like to go with a
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good service, I'll have one linked
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in the description below,
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and with that, I would like to
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thank you so much for watching
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and I hope you have a profitable day!
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