Self-Directed vs. Conventional IRA: Where does Cryptocurrency lie?

Self-Directed vs. Conventional IRA:
Self-Directed IRA SDIRA documents on a desk.

One of the most important decisions to make when starting a new business is choosing the right retirement vehicle – a decision that can provide substantial tax benefits and potentially set you up for a comfortable retirement. The two primary options are a Self-Directed vs. Conventional IRA, which have different requirements when it comes to the investments that you can use.

Crypto IRA (Individual Retirement Accounts) can be defined as an investment type that is related to digital currencies with the main intention of protecting your savings against inflation. Cryptocurrency lies under the self-directed IRA options, but it is important to do your research and find a trustworthy custodian that can help you get started.

Discussed below are the 5 Benefits of a Self-directed IRA Crypto IRA.

1. Access to the Fastest Growing Investment Assets

There are many options to choose from when it comes to an IRA. If you’re interested in investing in crypto IRA from Viva Capital which many experts are predicting may become a multi-trillion dollar asset class, most likely you’ll want a self-directed IRA, this is because there is access to the fastest-growing investment assets, what this means is that you have a much larger variety of investment options. Since the beginning of 2017, cryptocurrencies have increased their market size from $17 billion to over $170 billion. That’s an incredible performance, and Self-Directed IRAs can easily participate. 

2. No Capital Gains Tax for Accumulation

One of the key features is that Self-directed IRA does not generate capital gains tax because it’s not considered a security under current U.S. tax law, which means there are no built-in gains for crypto IRA like there are for traditional securities. Therefore, the value growth is passed on to the investor tax-free until it is distributed, which means you can enjoy compounding returns much sooner.

3. No Taxes on Cryptocurrency Gains

The Internal Revenue Service (IRS) treats crypto IRAs as property, which means that each time you sell cryptocurrency, it is treated as a capital gain or loss. Additionally, the U.S. government recently passed tax reform which has increased the maximum capital gains tax rate to 23.8% for those in the highest income brackets, which means a Self-Directed IRA LLC can give you a huge advantage because you can defer capital gains tax until you take a distribution – perhaps decades down the road.

4. Roth Conversion Opportunity

The other advantage of the Self-Directed IRA LLC over a traditional IRA is that you can always convert your Self-Directed IRA to a Roth IRA and pay the taxes on the conversion upfront instead of paying tax on your traditional IRA distributions in retirement. Roth IRA means you will pay the taxes upfront and enjoy tax-free withdrawals in retirement.

5. Tax-Deferred Growth

In other words, if you don’t take your Self-Directed IRA distributions in a certain year, you do not have to pay taxes on those distributions. Instead, the gains will be taxed at a later date – perhaps when you are retired and in a lower income tax bracket. Additionally, the crypto IRA is protected from creditors and bankruptcy.


In sum, a Self-Directed IRA adds flexibility to your retirement plans and allows your retirement assets to grow in a tax-advantaged manner compared to A Conventional IRA does provide more of a set-it-and-forget approach, but the options are limited. Therefore, if you want to invest in crypto IRA, Self-Directed IRA is the way to go because of the benefits discussed above.