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Jan12, 2023

Should I Own Cryptocurrency in My Retirement Account?

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In this episode of the Great Retirement Debate, Ed and Jeffrey debate the pros and cons of owning cryptocurrency in your retirement account.

Episode Transcript

[00:00:00] INTRO: Hi, I’m Ed Slott and I’m Jeff Levine. And we’re two guys who just love to talk about retirement and taxes. Look, our mission is simple to educate you the saver so that you can make better decisions because better decisions on the whole lead to better outcomes. And here’s how we’re going to do that. Each week, Jeff and I will debate the pros and the cons of a particular retirement strategy or topic with the goal of helping you keep more of your hard earned money. Yeah, but we won’t know which side of the debate we’re taking until we flip a. Winner of the coin flip gets to pick which side of the debate they want to argue, and both of us will have to argue in favor of our respective positions, whether we agree with them or not. At the end of each debate, there’s going to be one clear winner. You a more informed saver who can hopefully apply the merits of each side of the debate to your own personal situation, to decide what’s best for you and your family. So here we go. Welcome to the great retirement debate.[00:01:00]

[00:01:02] Jeff Levine: Hello everyone and welcome back to the great retirement debate. I’m Jeff Levine. And with me today as always is Ed Slott, Ed, good afternoon, what’s going on?

[00:01:11] Ed Slott: Well, great to be back with you. We’ve got a great topic today. One that everybody’s talking about. So tell us, Jeff, what are we talking about today? What are we debating?

[00:01:19] Jeff Levine: What if, what if I say, I don’t know, you’ve already set this up to be such a, a hyped, uh, a hype topic.

[00:01:25] Ed Slott: Yeah. Yeah. It is a hype topic, man. It is the epitome of a hype topic.

[00:01:30] Jeff Levine: Are, are you, are you getting where we’re going yet? Folks? Are you, are you seeing what’s coming? What, what could we possibly be talking about today? That just is all over everywhere. and it won’t let up, that’s right, we’re talking about crypto in retirement accounts. Ed, should you own cryptocurrency in a retirement account? That’s our topic for today. You wanna flip the coin?

[00:01:54] Ed Slott: All right. And remember it, whatever it comes out. Oh, you have to pick, uh, heads or tails.

[00:01:59] Jeff Levine: I [00:02:00] will, uh, I’m gonna take tails.

[00:02:01] Ed Slott: I’m gonna actually flip a real coin. Now, if you’ve seen other episodes, Jeff has an automatic program, so he always wins or whatever. Uh, this is an actual flip came out. Oh, in case you didn’t hear there it is came out tails.

[00:02:17] Jeff Levine: Tails. So I get to pick. All right, I’m gonna, I’m gonna do you a favor, Ed.

[00:02:21] Ed Slott: Oh, good.

[00:02:22] Jeff Levine: I’m going to take the side of pro.

[00:02:25] Ed Slott: Pro crypto. Ooh, that’s bold. That’s it?

[00:02:28] Jeff Levine: Hey, you only live once, Ed. YOLO!

[00:02:31] Ed Slott: Yeah, right.

[00:02:32] Jeff Levine: That’s that’s gonna be the theme for today’s episode for me. You only live once. Just let’s do it.

[00:02:37] Ed Slott: All right. Well, this, this works out because if you’ve been noticing on our great retirement debate, there’s also a great generational divide here.

[00:02:45] Jeff Levine: Yes, you are old and I’m not.

[00:02:47] Ed Slott: Right. Right. So if anybody should be pro crypto, it should be the young guy, cuz he’s got more time to recover when he gets wiped out. uh, you know, this is why I don’t like crypto a couple of reasons in [00:03:00] retirement accounts. I don’t understand it enough to explain it to somebody as an advisor, if I can’t explain how it works and yes, I’ve read all the articles on blockchain and this and that and how, uh, safe it is or unsafe. Although I just did see an article where a guy died with 250 million in crypto and he took the password with him. Nobody ever got that money. I don’t know if you saw that piece Jeff. A few months ago.

[00:03:24] Jeff Levine: Yeah and there there’s another one I saw years ago where, uh, some, some guy put his like whole bunch of early crypto in a, in a cold storage, which is effectively a, uh, an offline storage for your, your digital currency. And, uh, he has three guesses or itself destructs, and he’s been wrong on two already.

[00:03:46] Ed Slott: Oh gosh.

[00:03:46] Jeff Levine: I mean it’s millions and millions and millions of dollars and he couldn’t bring himself to guess the third one

[00:03:52] Ed Slott: That said should, you know, uh, for people approaching retirement or already there, I say it’s, it’s a, it’s a [00:04:00] no brainer to stay away from it. Yeah there may be upside, but there’s also downside too. And as you get older, you don’t have the time to recover from your losses. Look at the people in 2008 and nine that were say in their seventies or eighties, they did not have the years to recover. Yes, the market went up, but at least that’s a market, a market we know eventually goes up, nobody knows what’s going to happen with this crypto. It’s great for younger people. Maybe it’s great for a couple of reasons when they lose their money, at least they got that lesson early on, and maybe that will help them for years later to not to be so aggressive or, uh, be more careful with their money, but they also have the advantage of having time to recover. Oh. And they also have parents that can bail them out. Most people don’t have that advantage. So I, I’m not a big fan unless I could really understand it. I guess maybe people might say Ed, you just don’t understand the blockchain and this and that. [00:05:00] And maybe that’s why, uh, you are so anti-crypto in a retirement account. To me, a retirement account means security you’re depending on this money for retirement. So, uh, I would say no on that and of the regulators are with me. They’re all worried about it, but, uh, let’s hear what you have to say, Jeff, for the youngsters here.

[00:05:21] Jeff Levine: Well, for anybody, I would say if you’re thinking about owning it, right and this is one of those things where, you know, maybe it’s not so much of a merit of the investments. It’s a matter of,

[00:05:32] Ed Slott: Yeah let me stop you there. Is, is it, would you call it an investment?

[00:05:37] Jeff Levine: Yeah, it’s a, it’s a speculative investment.

[00:05:39] Ed Slott: Oh, that tells me all I need to know. Yeah.

[00:05:42] Jeff Levine: Well, it’s it’s listen. Anything can be an investment if you think it’s gonna go up in money, but, or up in value over time, I should say.

[00:05:49] Jeff Levine: Uh, do I think it’s going to work out great. I don’t know. I have my look personally,

[00:05:53] Ed Slott: you have a tough argument, so I’m gonna just let you talk.

[00:05:56] Jeff Levine: All right. Well, I, I own some. I own some cryptocurrency. [00:06:00] I actually don’t own it in a retirement account, uh, simply because there’s not a ton of, uh, custodians out there, at least at the time that I was buying them that, uh, that would make it easy, but they’re starting to come online more. And if you can own crypto in a retirement account, especially a Roth IRA, that would seem to make, uh, a lot of sense to me because if there’s one thing we’ve seen it, it, you know, you’ve heard Elon talk, right. He’s to the moon. To the moon. Uh, and this is one of those investments that has that potential. I’m not predicting. It will go there. Like to be clear, I’m not saying it will go to the moon. I’m just saying there are certain things like if you buy a us treasury bill, you are just not going to make 600% in a year. You have the possibility with cryptocurrency again, I’m not predicting it. I wouldn’t suggest that that’s likely I don’t, I, I personally don’t think that’s going to happen, but we’ve seen dramatic rises in, in cryptocurrency prices over the years.

[00:06:59] Jeff Levine: [00:07:00] I mean, the, the first usage of Bitcoin as kind of the, the, the, the, the first cryptocurrency the first E currency, somebody bought, you know, pizzas for thousands of Bitcoin. What would, what would be worth, you know, millions and millions and millions of dollars today. So we’ve seen the, uh, the price of these cryptocurrencies. So not just Bitcoin others as well, like Ethereum and, uh, you know, the, the others. I’m just gonna say others.

[00:07:27] Ed Slott: Doge coin, is that one?

[00:07:28] Jeff Levine: Doge coin. Yeah. Yeah, yeah. That’s good. You didn’t pronounce it. Doggy coin, Ed. It that’s. That’s the, okay, so you’re not, you’re not as, maybe you’re not as out of touch as you think. You know, when some, some people see it and they call it doggy coin.

[00:07:39] Jeff Levine: That’s that’s when you know, you’re talking to someone who, uh, , who maybe is bit

[00:07:43] Ed Slott: I’m old and I’m more conservative as I get on in years, but this is to benefit anybody. And I will take your point, uh, if you’re going to do it, I would do it probably in a Roth IRA, which has the greatest upside, because let’s say it does go through the roof and you make all [00:08:00] this money, then it’s all tax free. But the downside to that article, if you lose a fortune, uh, the IRS doesn’t share your pain, you won’t get any deduction as opposed to if you lost it in a 401k or a tax, a tax deferred IRA, uh, you’ll have less money and less tax. So the, the government does share your pain on the down side.

[00:08:21] Jeff Levine: Yeah, and that they do. And, and to that point, the other thing is, you know, one of the, a lot of, a lot of younger people, especially they will, uh, trade cryptocurrency rather vociferously. And the reporting on, uh, cryptocurrency transactions is not nearly as strong as it is with some other sorts of investments. Things like stocks, bonds, mutual funds, etc. And that can create an absolute tax nightmare for folks, right? An absolute tax

[00:08:49] Ed Slott: Talking about the stocks?

[00:08:51] Jeff Levine: Well, no, no more so in the sense that like, if you’re gonna trade cryptocurrency, why not do it into retirement account where you don’t have to keep trackable your buys and losses? [00:09:00] Yeah. Yeah. So, so to me..

[00:09:02] Ed Slott: That’s the same for stocks. I always tell people if they’re big players and they’re going in and out all the time, do it an IRA or Roth IRA where the transactions don’t have to be reported any anywhere.

[00:09:13] Jeff Levine: You’re right. Don’t bother your CPA with 75 pages of, of buys and sells. That’s gonna cost you $400 to, you know, an additional $400 to add to your tax return to report the net $13 you made on your 795 transactions.

[00:09:26] Ed Slott: A little off topic. I had a client like this many years ago, a big trader. And, uh, this was in the .com era when that started. Uh, and he was a big trader and he had, I, I don’t know how many pages anyway, he came up with a, over a billion in gains, but over a billion in losses too. And at that point, the tax program didn’t have the billion dollar digit. It didn’t have room for it. I had to do like 900,000 and. Uh, they, he came in with a box, uh, an actual carton of the, of [00:10:00] all the trades.

[00:10:01] Jeff Levine: Was he a client again? The next year, Ed?

[00:10:03] Ed Slott: I think he was.

[00:10:06] Jeff Levine: Did you send him on his way politely?

[00:10:09] Ed Slott: No, no, no. It, it wasn’t, you know, he had all the, uh, all the totals. I only had to use the totals, but he had literally a box of back then the, the worksheets were attached. You know what I mean? The, uh,

[00:10:22] Jeff Levine: yes

[00:10:23] Ed Slott: like they still use at the airports when they, when you get on the flight, you ever notice that they still use, what, what is that printer where prints the continuous role?

[00:10:31] Jeff Levine: Yeah. Dot matrix printer. Yeah. Yeah. The thing I got

[00:10:35] Ed Slott: Yeah yeah. Still using that. So that’s what he had, but you’re right. A little off topic. Uh, you could get into a lot of transactions and if you’re gonna do it, that the retirement, uh, plan is a way to do it because they don’t have to be reported there.

[00:10:49] Jeff Levine: All right. So I win.

[00:10:51] Ed Slott: Well, I wouldn’t, no, I wouldn’t go that far. I said, if you’re going to do it, and I would also say, if you’re going to do it, and you would have to agree with this, even the regulators and the [00:11:00] custodians that are even beginning to offer this now, uh, none of them are saying, I, I think all of them are saying, if you’re going to do it, don’t go more than 5% or they won’t even let you go more than 5%.

[00:11:11] Jeff Levine: Well, I think it’s important to. To distinguish here, let’s say between plans and IRAs and, and other types of assets. If, if you are a plan fiduciary, and I’ve said this before, I would not include cryptocurrency in my plan lineup that is asking for trouble. And, and not because you’re saying crypto is, is no good or not, because you’re saying you don’t believe in it or you do it doesn’t matter what you think the regulators, as you have just said are, uh, are. Have have voiced concern to put it mildly. And as a plan,

[00:11:47] Ed Slott: I wouldn’t even put it mildly. Uh, one, I think it was the department of labor that actually called crypto in a retirement plan kryptonite.

[00:11:56] Jeff Levine: That’s that’s good. I may have to steal that ed. Uh, the, um, [00:12:00] the, the issue that concerns me there is the fiduciary liability and what a lot of plan fiduciaries don’t realize is not only are, is the, is the plan and the company kind of responsible. But so too is the plan fiduciary like the HR representative. They are personally liable for the investment lineup and the decisions that they make within the plan. And so I wi with regulators being that vociferous about their dislike of the, of, of crypto being in a plan. Even if I thought it was a great idea, personally, I couldn’t I couldn’t possibly get there as a plan fiduciary, but if this was my own account and I was looking at my, again, an IRA as a, as an example here, or if I was a self-employed individual and didn’t have other people in the plan to concern myself with, then I’m not as concerned about the fiduciary liability, cause it’s literally just me or if it’s an IRA there isn’t the same sort of fiduciary plan liability there. And so that again would, would seem to [00:13:00] me a, a good place to hold those assets because I don’t have to worry about the regulator’s issue. No regulator is suing me for owning whatever I want in my IRA. It’s mine.

[00:13:10] Ed Slott: I’ll give you another argument for your side. Again, dealing with clients for many years, every now and then you probably have the same thing. You had a client that liked to have play money in the market.

[00:13:22] Jeff Levine: That’s it!

[00:13:22] Ed Slott: Right. Maybe, you know, in a retirement account, maybe even better in a Roth. If the client, you know, is just itchy or if you’re watching this and you are, you are the person you say, but I’d like to try. Alright. Put that aside in a, probably in a self-directed IRA, you’ll probably need that. Most of the regular custodians, I don’t think are allowing it yet, but you, you have a, a separate play money account for maybe 5% or whatever it is. And you know, I’m okay if I lose that money, but I’m gonna have fun with it. That’s okay too, then I’m okay with, uh, so that’s an argument for your side, right? Jeffrey, you agree with.

[00:13:58] Jeff Levine: Yeah. And I think that’s [00:14:00] today, that’s the only prudent way to look at cryptocurrency is as play money. And when we say play, you know, we don’t mean that you don’t care about it. It’s just that it’s not gonna change your life if you lose it. Right. I mean, it, it really it’s. Cryptocurrency is an incredibly. Speculative asset. Uh, it is highly volatile and there’s also, you know, threats related to the cryptocurrency that don’t exist with other sorts of investments, even things like will the cryptocurrency be stolen, right? We’ve seen, uh, We’ve seen breaches of exchanges where millions and millions of dollars, billions, in some cases of dollars of cryptocurrency has been stolen. And one of the challenges with cryptocurrency is while it is all let’s say recorded on the blockchain, you don’t necessarily know where. Those dollars are going. There’s an ability to take dollars offline, effectively in cold storage. Uh, you can run, there’s no person [00:15:00] necessarily attached to it. Well, there’s always a person, but you don’t necessarily know who that person is that’s attached to that account at the end of the day. And so it can make tracking down stolen cryptocurrency much more difficult than say, um, traditional dollars.

[00:15:15] Ed Slott: It can be hacked. And we, we were just at a conference you and I, where we, I don’t know if this happened, but one of the speakers mentioned, uh, first of all, leaving it to family members. You don’t know the password it’s gone, but he was even talking. I don’t know if you were in that session where. He said, you know, it used to be the estate executor, which is a very trusted position. Another position of fiduciary handling your estate, which could be a family member. In the past, if the executor say stole money from the estate, there would be a paper trail. And this particular speaker, if you recall, Jeff said, if the estate executor, uh, runs off with the Bitcoin or the crypto, nobody will ever know

[00:15:56] Jeff Levine: That’s true. That’s true. Especially the person [00:16:00] who’s dead. Never know. Uh, well, you know, Ed, this is one of those areas where I think we both agree on the fact that cryptocurrency is, is speculative in nature. And if you’re thinking about doing it, one of the reasons you may wanna do it in a retirement account is simply that it, uh, a, if you do it in a Roth, all that future appreciation is going to be tax and penalty free provided you hold onto it until retirement account and meet certain rules, of course, but you have the potential. If, if you’re gonna hit a grand slam, you might as well hit the grand slam tax free. And also if we look at the reporting that goes along, if you’re gonna trade cryptocurrency relatively heavily, the current ability to report on those trades is not nearly as, uh, robust as is the same infrastructure surrounding traditional investments like stocks, bonds, mutual funds, ETFs it’s coming. There are programs out there.

[00:16:52] Ed Slott: Yeah, I was just gonna say, uh, the more that the more money that builds up in these things and the more horror stories that develop in the media, the, the tighter of the [00:17:00] regulation will be at some point.

[00:17:01] Jeff Levine: It’s funny, cause just a few years ago, Ed, it was all, the stories weren’t horror stories, right? It was this one was able to, you know, walk away and retire with 700 million because put in, you know, invested a couple thousand dollars in, in something and you know, the early two thousands and

[00:17:17] Ed Slott: Those are the same stories of that you hear from people who won the lottery. You, if you’re a guy won a 300 million, that’s one out of literally billions of people who lost money so he could get those billions.

[00:17:29] Jeff Levine: That’s right. Well, and ultimately. Headlines sell right head headlines are what would draw eyeballs would get clicks. And you don’t really hear the story of the, you know, 99.9% of other people who haven’t really done much of anything with it. So, uh, with any investment for that matter. So. That’s fair. Well, Ed, we’ve come to the end of, uh, another one of these debates. And as we know, there are two sides to every coin, but your life and your retirement decisions are too important to [00:18:00] leave up to that coin flip. And that’s why one thing you and I always agree on is that if you are going to have a big decision, if you’re making a life changing decision or really.

[00:18:10] Jeff Levine: Decision of significance. It’s always best to speak with a knowledgeable financial advisor or a tax professional so that you can weigh the benefits and drawbacks of that decision against your specific set of facts and circumstances. If you’d like to continue to discussion with Ed and I we’d love to hear from you, you can reach out to us on social media, on Twitter @TheSlottReport for Ed. Again, that’s @TheSlottReport with two Ts can reach me @CPAPlanner. Again, that’s @CPAPlanner. Let us know what we missed, let us know if you think there’s a particular aside to this, uh, debate that you resonate with. And if you got a suggestion for a future debate, let us know. We’d love to hear from you. And until then, Ed, it’s been fun.

[00:18:51] Ed Slott: I think this is a topic we may be revisiting as we learn more about crypto everywhere. And it’s so critical. You said it before, but I’ll say [00:19:00] it again, uh, to run this by an advisor, just to get the voice of reason here and go through some of the arguments we made on both sides to see if it’s right for you, always, uh, you’re going to need a professional voice of reason here just, uh, to help you avoid maybe horrible mistakes or where to do it right. Anyway, we’ll see you next time on the great retirement debate!

[00:19:22] OUTRO: Jeffrey Levine is Chief Planning Officer for Buckingham wealth partners. This podcast is for informational and educational purposes only, and should not be construed as specific investment accounting, legal or tax advice. Certain information mentioned may be based on third party information, which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but it’s accuracy and completeness cannot be guaranteed. The topic discussed in corresponding arguments are those of the speakers and may not accurately reflect those of Buckingham wealth partners.