Buying Chainlink with a Self-Directed IRA or Solo 401(k)

Why Use Retirement Funds to Buy Chainlink?

There are three main reasons to consider investing in Chainlink with your retirement funds: taxes, diversification and getting into an emerging asset class.

Tax Benefits of Buying Chainlink

Back in 2014, the IRS issued IRS Notice 2014-21, which classified cryptocurrencies, including Chainlink, as property, like stocks and real estate. This subjects them to the capital gains tax regime. When you use a Self-Directed IRA or Solo 401(k) plan to invest, you don’t need to worry about taxes.

When using personal funds to invest, you need to know the details of every Chainlink transaction you make. This includes the date you bought it, how much you paid for it, the date and price when you sold it, and how long each crypto was held. At the time of sale, you will either owe short-term capital gains (held less than 12 months) or long-term capital gains (held greater than 12 months).

When you use retirement funds to invest, you don’t have to worry about these details every time you transact with Chainlink. Why? Because, retirement plans are tax-advantaged, meaning you do not pay taxes on the investments held inside of them. IRAs and 401(k) plans can either be pretax or after-tax.

Pretax or Traditional IRA or 401(k) – Traditional retirement plans are funded with pretax money, meaning you will receive an upfront tax break. You don’t owe taxes on any funds you contribute to the plan each year. The taxes are deferred until you start distributing funds during retirement.

Roth IRA or 401(k) – Roth contributions are made with after-tax money. Because of this, there is no immediate tax break. The benefit of these plans comes on the back end. All qualified Roth distributions are tax free! To be qualified, you must be at least age 59 1/2 and have a Roth plan open for at least five years.

Diversification

Any financial advisor or retirement specialist will tell you that you must properly diversify your holdings. As the saying goes, don’t put all your eggs in one basket. It makes good financial sense to spread across your investments, whether it be stocks, bonds and mutual funds, or alternative investments, such as real estate, metals and Chainlink.

If you are fully invested in the stock market and it takes a dive, guess what? So does your entire portfolio. Proper diversification allows one to ride through down periods with certain investments. For this same reason, you shouldn’t put all of your money into Chainlink. Cryptos have had a tumultuous ride since the start. Dramatic swings in the price can affect your bottom line if you are too invested.

Emerging Asset Class

Don’t miss out on the latest, emerging asset class. Imagine if you can go back in time and invest in Amazon, Tesla or Microsoft when they first went public? The cryptocurrency market, including Chainlink, is still in it’s relative infancy. The Blockchain technology behind them is improving all the time, so why not take a chance?

Of course, investing in Chainlink is not for everyone. There is an inherit risk in new asset types, especially something that not everyone is in favor of. It’s up to you, as the investor, to decide if the risk is worth the reward. Working with a financial advisor is your best bet before deciding whether or not to make a particular investment. Of course, it’s important that you do your own due diligence before investing in any emerging asset class.

Related: Crypto IRA’s and Private Keys

Self-Directed IRA or Solo 401(k) for Chainlink?

You’ve decided you want to invest in Chainlink, so what plan should you choose? A lot depends on the type of income you earn. Are you self-employed or do you work for someone else? If you are self-employed, it’s a no-brainer; the Solo 401(k) is the best plan for you. For everyone else, a Self-Directed IRA is the way to go.

Solo 401(k)

In order to utilize the Solo 401(k) plan, you must have some kind of self-employment income. This can be from your own business, contract work or gig jobs, among other things. The second requirement is that you have no full-time employees, other than a spouse or business partner. The Solo 401(k) is arguably the best plan for the self-employed and features a number of benefits.

The Solo 401(k) plan offers high annual contributions limits, the ability to borrow up to $50,000, a Roth option, UBTI exemption and limitless investment opportunities. So long as your investment is not a collectible and does not involve a disqualified person, you can probably make it. This, of course, includes investing in cryptos, including Chainlink.

Self-Directed IRA

Anyone with earned income can open and fund a Self-Directed IRA. In fact, if you already have a retirement plan, you can generally roll those funds into a Self-Directed IRA. Although it is not as feature-rich as the Solo 401(k), there are no restrictions for who can open one.

When you choose the right custodian, such as IRA Financial, you can invest in almost anything, including Chainlink, with your retirement funds. A Self-Directed IRA can either be pretax (traditional) or after-tax (Roth). A traditional plan allows for upfront tax deductions since taxes are deferred until you withdraw from the plan. There is no immediate tax break with a Roth IRA, however, all distributions are tax free, assuming you are at least age 59 1/2 and any Roth IRA has been open for at least five years.

How Does it Work?

IRA Financial has partnered with Bitstamp to make buying and selling cryptocurrencies with your retirement account easy than ever.  To invest in Chainlink at Bitstamp, the regular Self-Directed IRA structure is best.  An LLC is not needed, so there is no extra cost to set one up.  Best of all, there are no third-party broker fees to worry about.  You simply set up your retirement plan with IRA Financial, fund the account tax free and IRA Financial will set up your Bitstamp account.  The rest is up to you!

Why Choose Chainlink?

As per the developers, “Chainlink’s decentralized oracle network provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain.” Further, their website states: “Through the use of secure oracles, Chainlink extends the functionality of blockchains by connecting smart contracts to real-world data, events, payments, and more in a highly tamper-resistant and reliable manner.”

What does this mean for investors? Chainlink is another player in the world of cryptos with a 46 billion market cap. It’s another high performing asset which is up over 1000% over the last year (May ’20-’21). The tech behind the crypto will allow you to connect your smart contract to any blockchain to go from real world data to real world events. It’s a secure, decentralized and open source code that many developers are using now and into the future.

Get Started

IRA Financial you can get started with the IRA Financial/Bitstamp Self-Directed IRA to invest in Chainlink. There are no asset value or transaction fees with IRA Financial. When buying Chainlink with Bitstamp, you don’t need an LLC or third-party broker. Your Bitstamp account is opened in the name of your IRA. This means there are no IRS headaches to deal with, since you are investing with a tax-advantaged account. Your IRA Financial account is easy to set up using our app.