Cryptocurrency Retirement Account For Both Employee and Employer Contributions

Adding digital currency to your retirement savings is one way to diversify and add growth potential to your nest egg. You can own a Cryptocurrency IRA, which is essentially a Self-Directed IRA (SDIRA) in which you have chosen to place cryptocurrency.

But this SDIRA can come in a few different classifications, including Traditional, Roth, SEP, or even a SIMPLE IRA, which is often the choice of small business owners seeking something simpler to set up and maintain than a 401(k).

What is a SIMPLE IRA?

A Savings Incentive Match Plan for Employees IRA, known as the SIMPLE IRA, is a tax-deferred employer-provided retirement plan offered by small businesses that enables employees to build retirement savings.

SIMPLE IRAs are attractive because they are less expensive, less complicated, and involve less paperwork than 401(k)s and similar retirement plans that employers can offer their staff. For small business owners, a SIMPLE IRA can be a sustainable means to a powerful incentive that may help retain top talent and keep employee morale high.

Under a SIMPLE IRA, the employer’s matching contribution is incorporated into the plan in one of two ways:

  1. The employer either matches the employees’ contributions at up to three percent of their salary.

or

  1. The employer makes flat two percent-of-salary contributions for employees who choose not to contribute.

By contrast, a company providing a 401(k) program may choose to accept contributions from their employees and not match those contributions. Even when matching programs are in place, these are often the first benefits to be cut during an economic downturn.

Unlike a SEP IRA, where only business owners can make the contributions, a SIMPLE IRA lets both the small business owner and the employee make contributions.

A SIMPLE IRA operates much like most other retirement accounts in terms of contributions, taxes, and penalties. Pre-tax contributions are made to the plan, and the assets in the plan grow tax-deferred until they are removed at retirement. A ten-percent penalty, in addition to income tax, has to be paid on withdrawals made before age 59 1/2.

Advantages of a SIMPLE IRA

So what are the benefits of choosing a SIMPLE IRA over a SEP IRA, 401(k), or other retirement vehicles?

  • Relatively low start-up and operating costs — For employers, start-up and operating costs are lower than for many other types of retirement plans and easier to run as well. SIMPLE IRAs do not require much of the paperwork that comes with other plans, which can bring documentation requirements around nondiscrimination rule compliance, vesting schedules, and even tax reporting at the plan level.
  • Tax credit for employers — In addition, employers receive a tax credit for 50 percent of eligible startup costs, up to a maximum of $500 per year for the first three years.
  • Mandatory employer contributions — Employees benefit because they receive a mandatory contribution to their account from their employers, and they don’t have to sign up for salary deferrals to receive that contribution if their employer chooses the two-percent-of-salary mandatory contribution option. The matching employer contribution belongs to the employees immediately and can be taken with them whenever they leave their job.
  • Easy to qualify — The requirements for qualifying are minimal. In fact, if an employee has received at least $5,000 in salary during any two preceding fiscal years and expects to earn at least as much during the calendar year of eligibility, he or she is eligible to participate in a SIMPLE IRA plan.

Compared to a 401(k) plan, asset options are greater for a SIMPLE IRA.

Rules of a SIMPLE IRA

Opening a SIMPLE IRA

To establish a SIMPLE IRA, employers fill out a specific form from the IRS depending on whether the employer will choose the institution where the SIMPLE IRA is held (Form 5305-SIMPLE) or if the employees can select the financial institution where they will keep their SIMPLE IRA (IRS Form 5304-SIMPLE).

To then finish opening these accounts, the employee must fill out a SIMPLE IRA adoption agreement.

The election period is usually the 60-day period immediately before January 1 of a calendar year. However, the dates of this period are modified if you set up a SIMPLE IRA plan in mid-year or if the 60-day period falls before the first day an employee becomes eligible to participate in the SIMPLE IRA plan.

Maintaining a SIMPLE IRA

Once the SIMPLE IRA plan has been set up, employers must contribute to it annually unless it is cancelled. Employers can choose to contribute either with a flat two-percent-of-employee-salary contribution, or they can match their employee’s contribution at up to three percent of their salary.

Contribution limits

Contribution limits are more flexible with a SIMPLE IRA than many other retirement vehicles. As of 2020, an employee can defer up to $13,500 of income to a SIMPLE IRA, with room for another $3,000 in catch-up contributions if he or she is 50 years old or older.

Cryptocurrency with a SIMPLE IRA

A SIMPLE IRA can offer more favorable contribution limits than other retirement vehicles. You and your employer might prefer to contribute to a conventional SIMPLE IRA, at least at first, since more financial institutions offer this type. Like other conventional IRAs, these can hold assets that include cash, mutual funds, stocks, and bonds.

But over time, you might choose to change how your retirement savings are stored.

As cryptocurrencies become more popular, many individuals are diversifying their self-directed IRA with digital holdings, in a so-called Cryptocurrency IRA or Digital IRA.

Placing cryptocurrency in a retirement account requires a Self-Directed IRA (SDIRA), because conventional IRAs generally cannot hold alternative assets like crypto. Similar to other forms of IRAs, a Self-Directed IRA needs a third-party custodian to administer retirement account assets.

So what do you do if you want to use your SIMPLE IRA to purchase cryptocurrency?

The good news is that you can roll over your conventional SIMPLE IRA into a Self-Directed IRA as long as your SIMPLE IRA has been open and active for at least two years. You can choose what type of SDIRA you prefer to open: Traditional, Roth, SEP, or even a SIMPLE one.

However, please note that there may be tax implications to change to a new classification, so please consult with a tax professional.

Steps to Roll Over Your Conventional SIMPLE IRA to a Cryptocurrency IRA

We work hard to make sure the process of rolling over your conventional SIMPLE IRA into a Cryptocurrency SDIRA is simple and straightforward. It all comes down to four basic steps:

Get paired with your own Specialist

One of the first things that will happen if you work with BitIRA is that you will be matched up with a Digital Currency Specialist who can answer your questions and walk you through opening your Cryptocurrency IRA.

Choose your SDIRA type and funding source(s) 

Your Specialist will then lay out your options for the type of Self-Directed IRA (Traditional, Roth, SIMPLE, SEP, etc.) that you can choose to open. You will decide how you’d like to fund it, which will include reviewing your existing retirement accounts and pick from any that are eligible for rollover or transfer.

Sign the paperwork and pick your crypto

Next, you will sign the necessary paperwork to open your account. Once the funds are available in your SDIRA, you get to pick which of the available cryptocurrencies you’d like to purchase for your retirement account.

Use My BitIRA to manage your account

rom there, you can monitor the performance of your new Digital IRA via BitIRA’s portal, My BitIRA (https://my.bitira.com/). This portal also lets you initiate the purchase, sale, or exchange of cryptocurrency within your Digital IRA.

Benefits of Holding Cryptocurrency

There are a number of potential benefits to holding cryptocurrency as compared to other asset types.

  • Some say there might be long-term growth potential in digital currencies, which could represent a major disruption in the financial system. Kay Van-Petersen, an analyst with Saxo Bank and one of the first to correctly predict that Bitcoin would reach $2,000, predicts it will reach $100,000 within the next ten years.
  • Cryptocurrencies have a decentralized infrastructure, so governments and central banks cannot directly influence their value.
  • Many cryptocurrencies are limited in supply and impossible to inflate due to adaptive scaling methods. For example, there’s a hard limit of 21 million Bitcoin that can be created. However, there is no limit on the amount of currency that a government can issue.
  • Transactions involving cryptocurrencies are confirmed through a peer-to-peer protocol on a blockchain network, making them fast and secure. The cryptocurrencies are stored privately in heavily encrypted software wallets.

Conclusion

As we’ve discussed, adding cryptocurrency to your retirement account might offer some long-term benefits, at least by diversifying your holdings.

Although there are many ways to work with us and place cryptocurrency in your retirement savings, one way is to roll over your conventional SIMPLE IRA into a self-directed IRA. Your Digital IRA Specialist can help walk you through the steps of this process, making it smooth and simple.