Nowadays, many parents want to use cryptocurrency to pay for their kids’ college. A recent survey of 1,250 parents by the online magazine Intelligent.com shows that 87 percent of parents saving money for their kids’ college say they have invested in cryptocurrency. Anyone can trade and invest in cryptocurrencies on biti-codes.io.
Students who pay with cryptocurrency need to think about three important tax issues
- Change your bitcoins into cash or another form of payment the college will accept.
- At this point, you can decide to sell some of your bitcoins and put the money into a 529 college savings plan.
- If you lose money in crypto, you might be able to make it up by selling stocks, bonds, or other investments that have gone up in value over time.
But should someone who wants to pay for college invest in cryptocurrencies? Finance and cryptocurrency experts say the asset has some problems because it is new, volatile, and not regulated.
1) You should only use small amounts of cryptocurrency to pay for your education
As an asset class, cryptocurrency is still young, so its value will likely change in weird ways. This year, the price of bitcoin has dropped a lot, which is a big deal. Even though it has been going up lately, the price of bitcoin has dropped by more than 70% since November, when it hit an all-time high of about $69,000. Recently, the price of bitcoin has increased, but this is still true.
2) Find out where your student wants to go in life
Ben Weiss, CEO, and co-founder of the CoinFlip bitcoin ATM network says that parents should be careful about how long they want to invest in bitcoin. Cryptocurrency is not the best short-term investment if you want to send your kid to college next year. But if you have, say, ten years, it’s likely that the value of crypto will go up a lot in that time.
3) Think about how cryptocurrencies and 529 plans affect your taxes
When you buy cryptocurrency, you may have to pay many taxes. You will need to consider this when deciding how to pay for your education. Let’s say you invested in bitcoin ten years ago and have made much money since then. Weiss thought that if you sold a lot of shares, you would have a lot of money that you would have to pay taxes on.
Edelman says that families who need more money for college shouldn’t use cryptocurrency but should instead use a tax-advantaged 529 college savings plan to invest in stock funds. This is because using cryptocurrency could affect your taxes. Edelman said that investing in cryptocurrency would have to be about 50% better than investing in the stock market for it to be as good, after taxes, as investing in stocks through a 529 plan.
There aren’t many ways to put money into cryptocurrency with a 529 account. A spokesperson for the National Association of State Treasurers, an expert on state treasury programs, said that the group does not know of any 529 plans that let investors directly invest in cryptocurrencies. Some plans may include investments that only give little crypto or blockchain technology exposure.
If you want a tax-friendly way to save money for college with cryptocurrency, you might want to look into a self-directed Coverdell Education Savings Account. Be aware, though, that you can only put a small amount of money into this kind of account, and there are other rules.
Pay close attention to how good it is if you want to buy cryptocurrency directly. Weiss says that people and families should only invest in bitcoin and ether, the cryptocurrency connected to Ethereum. Based on the size of their markets, these two are the most valuable. Greenberg also says you should buy the currencies from trusted exchanges like Coinbase or Gemini.
Disclaimer: This is sponsored marketing content. The presented material by no means represents any financial advice or promotion. Be sure to do your own research and acknowledge the possible risks before using the service of any cryptocurrency platform.