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

Why Use Retirement Funds to Buy Dogecoin?

There are three main reasons to consider investing in Dogecoin with your retirement funds: taxes, diversification and getting into an emerging asset class. While Dogecoin may be your primary interest, you can invest in countless Cryptos in a Self-Directed IRA.

Tax Benefits of Buying Dogecoin

Back in 2014, the IRS issued IRS Notice 2014-21, which classified cryptocurrencies, including Dogecoin, 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 Dogecoin 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 Dogecoin. 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, precious metals, Dogecoin, and other cryptocurrencies.

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 Dogecoin. 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 Dogecoin, 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 Dogecoin 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.

Read More: Crypto IRAs and Private Keys

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

You’ve decided you want to invest in Dogecoin, 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 Dogecoin.

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 Dogecoin, 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.

Why Choose Dogecoin?

As you may know, Dogecoin started out as a joke, based on the popular “Doge” meme, featuring a Shiba Inu with some text. Since its inception, it was barely worth a fraction of a penny. Of course, as with many things, it became popular for a couple of reasons. Redditors were the first to jump on the train, followed by Tesla founder, Elon Musk. Dogecoin topped out at about 72 cents in early May, 2021 before settling down about half that price.

Obviously, it’s a way cheaper alternative to other cryptos, especially the “big dog,” Bitcoin, which sits at over $50,000 per token. Dogecoin describes itself as “an open source peer-to-peer digital currency, favored by Shiba Inus worldwide.” Obviously, tongue-in-cheek that doesn’t take itself too seriously. It sits just shy of 50 billion market cap. It’s become quite popular for “microtipping” and for unique fundraising campaigns. While it may not see the success of other cryptos, it’s a fun, and cheap, way to get into the crypto space.