Recently an NFT (non-fungible token) sold for almost $70 million at a Christie’s auction. Does this mean that they are worth investing in? Would an NFT be a good fit for your retirement portfolio? Let’s discuss.
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Definition of NFT
The term fungible in NFT means units are interchangeable. If you buy a standard-sized screw, you can replace it with any other screw of the same size. Same with dollar bills – all dollar bills are created equal.
Therefore, a non-fungible token is not interchangeable with others. Because of that, they become collectibles, as each one is unique. An NFT is a digital asset that is also collectible.
Ownership of NFTs
In some ways holding an NFT is more secure than owning a physical work of art. The reason is that with an NFT, a record of the transaction and, therefore, ownership is kept on the blockchain. The blockchain’s ledger provides proof of ownership. Even if an NFT is replicated, the blockchain provides verification of the true owner.
What Gives an NFT its Value?
Just as there is a difference between seeing a work of art in a museum vs. actually owning that artwork, there is a difference between seeing an NFT vs. owning it. Those who become collectors of art want to own works they find particularly engaging. For these individuals, simply looking at the image is not enough. They want to possess it.
As NFTs become more popular, the price of some can skyrocket. One site that tracks NFT sales reported that more than $40 million was generated in sales from a single sales site.
Given the increasing interest in NFTs and the fact that they can be securely held thanks to the security features inherent to the blockchain, many retirement planners and individuals wonder if they would be a good addition to IRAs and 401Ks.
Can you Buy NFTs With Retirement Accounts?
If you buy an NFT for, say, $200, and over time it sells for $1000, then that is a great rate of return. If you were able to purchase this type of product through the funds in your retirement account, you could reap some great tax benefits.
Currently, you can buy various assets with the funds in your retirement accounts. But would NFTs qualify?
An argument can be made that an NFT can be considered a collectible. However, it is not clear from the IRS code whether the IRS would agree. The IRS defines collectibles in a very specific way. While works of art are included in the list, digital files are not. Therefore, buying an NFT with your retirement accounts is not going to be allowed by the IRS.
What Digital Assets Are Allowed?
You can legally buy cryptocurrencies with your retirement funds. While cryptos such as Bitcoin are often volatile, they also historically have shown high long-term rates of growth, so they might be a good fit for your retirement portfolio depending on your risk tolerance and investment strategy.
There are several types of retirement accounts, and SoFi allows you to open an IRA. There are two varieties – a traditional IRA uses pre-tax income, while with a Roth IRA, you use already taxed income; however, the profits will accrue without being taxed.
To open a Roth IRA go to the SoFi site and follow the easy instructions. SoFi also offers a lot of information so you can decide if the Roth IRA is right for you.