Podcast Episode - Suze School: Revisiting Retirement Accounts

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It’s another great Suze School, this time on the important details we need to know about investing in crypto currencies inside of our retirement accounts.

Podcast Transcript:

October 3, 2021. That means it's just 10 days before the Alliant Credit Union sweepstakes ends! Don't miss it. I just have to say one thing about it. Obviously, you can learn about how it works at the beginning of the podcast. However, your chances of winning are really great and it doesn't cost you anything you should think about it, go to myalliant.com. All right Suze school today, I want to revisit retirement accounts and I want to revisit them because on Thursday’s last Thursday, Suze's rant, I briefly and very quickly talked about Bitcoin and IRAs and why you should or you should not do it. And I got so many emails saying Suze can you do that again? But really slower and in more detail because we're really, really interested in learning about this and what you think about it. So, therefore I do think it's something that deserves an entire podcast because this is something that you may want to do, especially if not now, maybe sometime in the future. So, let's begin talking about retirement accounts and what I believe you really, really need to know. If you were going to invest Bitcoin in a retirement account or if you had a retirement account that you wanted to purchase Bitcoin or Ethereum or any Cryptocurrency in it, you would have to do it in a self-directed IRA. So, what is the definition of a self-directed IRA and how does that differ from probably the IRA account that you have right now. Most IRAs when you open it up with a major brokerage firm, discount broker, whatever it is it is an account where yes, it's an individual retirement account. Forget the fact if it's a Roth or traditional doesn't matter. But it's an individual retirement account, where your financial advisor sometimes can make decisions for you. They can have a discretionary account which means they have the discretion to buy and sell anything they want or if they want to, they have an idea they call you up and you say okay. In a self-directed IRA, it's the exact same thing except you can do anything that you want. It's all your responsibility. No advisor is going to talk to you about what you should buy, what you should sell, no ideas whatsoever. It's totally self-directed. And the reason that they call it self-directed, is that reduces their liability of you doing something and you lose your money and you can't say well they told me to do this because it is a self-directed IRA. You did it, doesn't matter where you got the idea, you're the one who made the decision without anybody recommending it to you and you made that investment. You might just go online and make the investment yourself, but you did it yourself with no financial advisor really involved. Does that make sense? So, Bitcoin can only be done or any Cryptocurrency for that matter in a self-directed IRA. Now as of today, very few major brokerage firms will allow you to buy the actual Cryptocurrency, period. Not only not in an IRA. But not in any account whatsoever. Most of them will only at this point in time sell you, you know grayscale or ETF, or something that buys the cryptos for you in an ETF. But they will not do the actual Cryptocurrency but there are many places where you can buy the actual Cryptocurrency and we've talked about a few of those Coinbase, PayPal, FTX. There’s many places out there that you can literally open up an account and by the Cryptocurrency that sits in your account. Now in the past when people paw cryptocurrencies especially Bitcoin it was a very complicated process. You had to do it on a special website, you had to put it in your own wallet, it had this passcode and it got very complicated. Today it's really very easy again through either Coinbase, Paypal, FTX, or whatever. So, within those accounts however, most of those firms right now don't offer you the ability to open up an IRA. All they do is offer you the ability to purchase a cryptocurrency and sell a Cryptocurrency. So, a little bit ago another company came around by the name of BitcoinIRA.com and maybe there are other ones out there. But this is the one that was brought to my attention a while ago and this site BitcoinIRA.com was set up specifically so that you could open up a self-directed IRA. And within that self-directed IRA, purchase cryptocurrencies. You could have a traditional self-directed IRA or a Roth self-directed IRA or 401K, all kinds of things, retirement accounts, you could have there. Again, the url is BitcoinIRA.com. Now as of today there's about 100,000 users that are using this platform. Is that a lot? Well not really, if you think about the millions and millions and millions of people that are at TD Ameritrade or you know Fidelity or Charles Schwab. It's a very small amount of people doing this but that doesn't mean that it won't grow. That doesn't mean that the firm isn't legit. But this concept is absolutely brand new, even if it's a few months old or a year old that's still relatively new. Now the rant that I went on, on Thursday was that many of you were looking to open up a self-directed IRA and purchase cryptocurrencies within there. And did I think that was a good idea or did I not and I then went on to say if it was going to be a Roth IRA I don't have a problem with it. If it is a traditional IRA, I do have a problem with it. So, let me first go through why I like a Roth IRA if you are going to be doing cryptocurrencies. I don't have a problem if you do it in a Roth IRA. Why I have a problem if you do it in a traditional IRA especially if you're going to leave it as a traditional IRA, because remember sometimes you have a traditional IRA and then you can convert it to a Roth IRA. Because there are no income limitations to convert from a traditional IRA which is pre-tax to a Roth IRA, you just have to pay the taxes on the amount that you convert. So, I want to explain the difference of why I don't like a traditional IRA as the main place that you keep your Bitcoin or any Cryptocurrency. Why I like a Roth IRA as a place for you to keep your Bitcoin or any Cryptocurrency. And why if you don't want to do any of those things for whatever reason, why an individual investment account in your own name is also a fine place to keep cryptocurrencies. All right, let's begin when you purchase cryptocurrencies. I want you to purchase them number one, if only and I mean only you can afford to lose the money that you have invested, because we still don't know enough about it. I understand very well that many corporations are adopting it. I personally like it. I personally own it and other cryptocurrencies, but whatever I have invested if I lose it all okay it's not going to affect me on any level. Although nobody likes to lose money, but that's how I want you to think about this because it's still speculative. Now from the time that we did Thursday Suze's rant to now, Bitcoin is up considerably. You know Bitcoin was at about 40/41,000. It's now at about 47/48,000. That's a nice little jump. So, cryptocurrencies tend to go up and down and fluctuate wildly across the board, even more so than stocks. So don't think of this as a stock investment, this is an investment in cryptocurrencies that you, if you do so you can afford to lose. Got that. So, let's just say you decide that you want to invest in a retirement account and put one year's contribution, we'll just start with one year into your Roth IRA. When you put money into a Roth IRA, and let's say you did it with $6,000, if you're under 50, $7,000 if you are 50 or older. You now open up an account and let's say you opened up an account at BitcoinIRA.com and you open up a Roth IRA, and within the Roth IRA after you've put your money in. You purchase Bitcoin and you do it with the intention of leaving it for a long, long time because truthfully if you're going to invest in cryptocurrencies then you're an investor. You're putting money in there to see where does it go in the long run. Can it go up to $500,000 a Bitcoin or whatever Cryptocurrency, you're buying. as many people think it possibly can or are you a trader that buys and sells cryptocurrencies very quickly. What are you doing if you are a trader, this segment here is not for you. I'm talking about most of the people that listen to the women and money podcasts are not traders. You don't come in and out of the markets. You don't do anything, you are investors and you're in it for the long haul. So here you are, you put your money in to a Roth IRA and you purchase a Cryptocurrency with it. The advantages to a Roth IRA, which is why I like it so much is, please remember any money that you put in to a Roth IRA, you can take out at any time without taxes or penalties whatsoever. So, you can get at the $6,000 or $7,000 that you put in even though it's in Bitcoin, you would just cash it out and take out the amount of money that you need. All right, so you have access to that money without penalties. Now, it could go up and down in the meantime, but at least you still have access to it. When you do in the long run, remember this is for a retirement, this isn't money that you want right now. This is money that you're investing for the long run, when you actually retire. When you do go to take it out in retirement, all the money that you take out at that time is absolutely tax free. So, let's just say you put in $6,000 or $7000 into your Roth IRA, and 20, 30 years from now, you're investing in cryptocurrencies and you chose some good ones or it's all in Bitcoin or who knows? And it is worth a few $100,000 if you wanted to, you could take out all of that money at once totally tax free or whatever money you want to take out its tax free. Or if you don't need the money because you are absolutely doing fine without it, then you do not have to do the required minimum distributions, that really affect every single other type of retirement account because Roth IRAs you do not have to take money out at the age of 72, which is called a required minimum distribution. So, if you wanted to, you could just leave it in there for as long as you wanted and then when you die it goes to your beneficiaries and it goes to them absolutely tax free. Now, if you are married it will go to your spouse and your spouse gets to decide, do they want to leave it in there? What do they want to do up to them? But when they take it out or they can take it over as their own and continue to invest up to them. But when they take it out or if it goes to any other beneficiary besides a spouse, you don't have to take out required minimum distributions. That is a big deal. Why is that a big deal? Because if you do not need the money number one, you get to leave it in there. And when it goes down to your beneficiaries and they want to take it out, they get to take it out, absolutely tax free as well. So, if you put some money in and it's not worth a few $100,000 and it goes down to your son, your daughter, whoever it may be, and they want to take it all out at once. They do not pay any taxes on it whatsoever. Do you understand why a Roth IRA is an account that I love no matter what you're doing, I don't care if you're buying cryptocurrencies in it or not. But if you're thinking about buying cryptocurrencies within a retirement account, a Roth IRA is the way to go. Those are all the pros, what are the cons? The only con of a Roth IRA is this. If you invest and your Cryptocurrency goes down, you don't get to take it off your taxes, you just lost the money, if you decide to sell. Just that simple. Why do I not want you if you are an investor to invest in a traditional IRA if you're going to be buying cryptocurrencies? For the following reasons. Yes, when you put money into a traditional IRA a you get a tax write off, but who cares about that? It's not that big of a deal. I care about that, when you put money into a retirement account and you make proper investments and it grows and it grows and it grows and it grows that you get to have access to that money. Absolutely tax free. There's a big difference between what: investing, getting a tax write off, letting it grow and grow and grow and then after the age of 59 and a half, because you can't touch it before 59 and a half without paying at least a 10% federal tax penalty, you could have state penalties as well. You would also pay ordinary income tax at that time. But you know, if you wait till after 59 a half and now you want to use it for something and you go to take it out, you're going to be paying ordinary income tax on it. That could be a lot of money. Why would you want to pay ordinary income tax on an investment ever? Just to get a small tax write off today. Now I understand that some of you may be in what you think is a high tax bracket right now. The truth of the matter is I will bet you anything that in the long run if you are in a high tax bracket today, you are going to be in a higher tax bracket a few years from now or when you go to take this money out. Because of the deficits that the United States of America are running and the total debt that this country is in. So, forget the tax write off for today and look at the future that anything that you have in this retirement account you get to keep. But that is not true with a traditional IRA. So, you invest and you are investing in cryptocurrencies and now it takes off and later on you go to take it out. Again, you're going to pay ordinary income tax on whatever money you take out at the time. Also, you have to remember that it is a traditional IRA, so at the age of 72 you have got to start making required minimum distributions, even if you do not need that money. You have to do it and you have to pay taxes on it. If the money is in there and you die, for anybody other than your spouse, when they go to take it out and they have got to wipe this account clean within 10 years. They absolutely are going to pay ordinary income taxes on it as well. There is no true benefit to putting it in a traditional IRA. Why would you want to do that? It makes absolutely no sense whatsoever. You can't take losses on it really. It's just such a waste. Now if you make too much income to qualify for a Roth IRA, what is too much income If you are filing single your taxes, if you make less than $125,000 a year of adjusted gross income, you qualify for a full contribution of $6,000 again, if you're under 50, $7,000, if you're 50 or older into a Roth IRA. That amount goes down, the more you make over $125,000 a year of adjusted gross income and totally disappears and you're no longer qualified for a Roth IRA, once you make $140,000 a year of adjusted gross income or more. If you are married filing jointly, those numbers are $198,000 to make a maximum contribution into a Roth. Totally disappears and not qualified after $208,000 of adjusted gross income. So, if you make more than that and you open up a traditional IRA, you could think about converting what's in your traditional IRA into a Roth IRA after you have opened it up. Maybe you wait six months or a year, but you could convert it and now your money is in a Roth IRA, rather than a traditional IRA. Do you all understand what I am saying here? Those are the differences between a Roth IRA and a traditional IRA. Now let's just say for whatever reason you can't convert, you can't open up a Roth IRA on your own. You make too much money. Your situation is, if you are going to invest in a traditional IRA, you have to stay in a traditional IRA. If that is the case then you would be better off opening up just an individual investment account. Because if you had an individual investment account that you could do at Coinbase or FTX or wherever you want to do it, when you purchase cryptocurrencies, you do not pay any taxes on them while they are sitting there. So, if you are an investor and you are investing for the long haul, you're not going to pay any taxes on it. And if you own it for more than one year, you pay capital gains tax, there's no penalty for you to withdraw it. Hey if you need money, you're invested and something comes up and you need the money. You just sell whatever you have, you pay the taxes obviously and you withdraw the money, not a big deal. Also, you have to know if you invest and you lose money and you sell it, you can take that off your taxes. Next, you put $6,000 or $7,000 or any amount of money into your regular investment account and you buy cryptocurrencies and now it's worth a few $100,000. You die, it passes down to your beneficiaries and they currently, this could change everybody, tax laws can change this. But currently they get a step up in basis, which means their costs basis on what they just inherited was whatever the value of your account happens to be at that time, let's say it's $200,000, if they don't want to be in cryptocurrencies at that point and they sell it, there's no income tax to them whatsoever. In an individual investment account, there is no required minimum distributions whatsoever. So, you're far better off if you are an investor, having either a Roth IRA an individual investment account where you buy cryptos, if that is what you want to do. So, am I making sense to all of you. Now, if you happen to be a trader and you're buying and selling, buying and selling, in and out, in and out and the only thing you can qualify for is a traditional IRA, then do it in a traditional IRA. Because if you're buying and selling and buying and selling, you don't have to pay any taxes on it obviously until the long one, until you are of age and you go to withdraw the money. I don't know. Most of you are not traders. So, these are just something that I want you to think about now. Why Suze Orman have you been concentrating so much on crypto currencies? Because a very fascinating thing is starting to happen with some of the firms that offer cryptocurrencies, and if you go to BitcoinIRA.com you'll see that if you open up a Roth IRA or a traditional IRA or any of the account retirement accounts that they have. You also can earn, approximately 6% on the money that's in there or your cryptocurrency. Now the technical name for this is called staking and it is far more complicated than for me to be able to explain on a podcast right now. But I do think in the future you are going to see because it's happening right now, that it is possible for you to make a lot higher interest rate in some of these firms than you could possibly make in a bank or you know in stocks that are paying less than that in dividends and things like that. Now, is it secure? I don't know, I have to tell you, I don't know, I don't think it's that secure. They say it's secured, it has insurance, it has this and that but nobody has ever tested it, it's not like FDIC in a bank for instance. Where if a bank goes under, you have insurance up to $250,000. Same thing with a credit union. And that's why you're always advised to not keep more than $250,000 in one account in most cases. So, I don't know how safe it currently is to tell you the truth. But it's an interesting thing to see the interest rate that they're starting to pay. Now, I myself I have an account at FTX, I've told you that. And they currently pay 8% on the 1st $10,000 and everything above that 5%. Now I don't know if that's safe or not. So, I put in my FTX, it's called earn account. I put $10,000 just to see what happens. So, I'm being your Guinea pig here everybody, I'm testing these things out to see how they work, what protects us, what doesn't protect us. But it's an interesting thing to think about with interest rates as low as they are, without us really being able to get a lot for our money. Just something to think about for many of us who are more risky. This is not, you put money in a credit union or a savings account that you need to know is safe and sound. This is for money again right now anyway that, okay if something goes wrong, you learned a lesson and many of you out there have that kind of money, believe it or not. But I think it's an interesting thing to start to learn about, every one of us because this could be the way of the future and so we need to know about it. So, bottom line is this, I don't have a problem with you purchasing cryptocurrencies in an individual retirement account as long as it is a Roth retirement account. Do we all have that straight right now? I also feel like if you're in a traditional IRA and that's where you want to do it. If you know that it has to stay in the traditional IRA, in my opinion, if you're not a trader and you are an investor for the long run, I personally think you would be far better off in an individual investment account with one of these firms and it's just that simple. So, I hope that explained it in great detail and maybe this is a podcast that you listen to over and over again, so that you really get it right, because I do think that there will come a day, that investing in cryptocurrencies may not be or seem as complicated as they are right now, it may be something that one day you want to do. Especially if you're listening to this podcast and you're younger and you want to see what happens. Maybe it's something that you're doing right now, doesn't have to be with $6,000 or $7,000. It can be for a few $100 if you want. But I do think it's important to know about this, because one day I think it may be more of the norm than any of us have any idea. So, there you go, KT said Suze, are you sure you don't want me to do a podcast with you again today? They must miss me terribly. And I said no, KT, we're going to have you back Thursday. So, I promise all of you Mrs. Travis will join us on Thursday for Ask Suze Anything. In the meantime. I just have to wish my sister and brother-in-law Lynn and Tom Stender, A happy 45th anniversary. Yesterday was their 45th anniversary, Lynn and Tom we love you both so much and again are so, so thrilled that you have each other and that you're loving your life as much as you are. All right, everybody until Thursday. Stay safe, stay strong and stay secure. See you then. Bye, bye.

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