TLDR:
1. Is getting an auto loan for the Cybertruck worth the investment?
2. Is 401k (matching) and IRA investment worth it as opposed to investing in Bitcoin?
3. How can starting a business help me save money on taxes?
Buckle up, this is gonna be a long post. I've tried to format it as nicely as possible to make reading it easier.
Assumptions
Before I begin, I want to make some bold assumptions about the future of Bitcoin, specifically.
1. 20% annual returns from Bitcoin investments. Historically, Bitcoin has yielded an average of 891% annual return. While whether or not this trend continues can be up to debate, that's not the point of this point. I've done my research and I'm confident in the fundamentals of Bitcoin enough to plan my retirement around. I'm not really asking for advice regarding Bitcoin, but more so for advice on the other aspects of FIRE. For the sake of argument, let's assume a very conservative 20% average annual return on my Bitcoin investments.
2. No taxes on Bitcoin. Currently, Bitcoin is taxed on capital gains. This implies being taxed when you sell Bitcoin, in other words, convert it into USD. Let's assume that by the time I retire (say in 35 years), I won't need to convert my BTC to USD because I can just pay for what I want using Bitcoin directly. Hence, no tax on capital gains. Which leads me to my final assumption:
3. Live off Bitcoin. Let's assume in the future, by the time I retire, I will be able to purchase all my needs directly in Bitcoin, including rent and living expenses.
Background
I will be 28 years old next month. So far, I've had kind of a rough start to life but I'm finally at a place where I've begun to seriously consider how I'm going to retire.
I grew up poor and have never been able to rely on my parents financially. I've been working since I was 16, first at summer camp as a counselor and then with internships throughout college. Unfortunately, it took me 8 years to finish my CS degree due to mental health issues setting me back; multiple medical withdraws and then having to apply to return to school. It was rough, but I finished with about $58k in student debt and a strong resume due to all my work experience; I managed two internships and a full time job for about 2 years in this time. Despite this, I had next to nothing in savings or investments to show for it.
When I graduated in 2019 and started working full time at my internship, I finally started looking into investing. I downloaded Robinhood and started building my portfolio with crypto assets compromising the bulk of it.
At the start of 2020, I started a new job with slightly better pay. At the same time, I did more research into Bitcoin, specifically, and realized it's value as an alternative to fiat based currency. Basically digital gold. I converted my RH portfolio into real Bitcoin that I moved into my own wallet.
I was then approached by a "financial advisor" (read: life insurance salesman) that opened my eyes to my retirement funds I had unknowingly been accruing. I realized these were my retirement funds that some other company was choosing how to invest (conservatively) with. I decided to pull my funds from my 401k to invest into Bitcoin, despite the 10% early withdraw penalty.
Once again, however, disaster struck as I was hospitalized again in March. In my vulnerable state-of-mind, I used the retirement funds I recently in my bank account to buy a car, which, thru a series of unfortunate events, I ended up losing. At the same time, I lost my job. This was right at the start of the pandemic and I ended up having to spend most of my savings to get by while I was unemployed. If not for all of these incidents, I would have had over 2 bitcoin or about ~$100k in savings by now.
Currently, I've found a stable job and have been consistently saving about $1200 a month in Bitcoin. I have about $10k in savings now. For the first time in my life, I have a budget and have been sticking to it very well. All of my cars I've purchased so far have been used and paid in full so my only expense is rent really. I haven't had to pay back my student loans yet due to Covid and deferments.
Cybertruck
Since it was announced, I've been enamored with the Tesla Cybertruck. It's quite literally my dream car and I don't think it would depreciate in value like a traditional car would. I have a reservation for it and realized I should probably start saving money towards making a down payment on it. I'm hoping by the time production begins by the end of this year/early 2022, I will have improved my credit score enough to get an auto loan to cover the rest of it.
I started doing some calculations and realized if I saved enough money this year, I could probably put 20-30k down on the Cybertruck and then get a 60-50k loan for the rest of it. This would make my car payments around $1200 a month. I also calculated that I would need to save about $1200 a month for the rest of my life to retire comfortably with, which I've been doing luckily. This made me realize that in total, I can afford to save around $2400 a month.
That's a lot of money.
Now, I'm having doubts about the Cybertruck. On one hand, my 2011 Ford Fiesta might last me a few more years before it reaches the end of it's lifespan, I think. (Currently, it has about 130,000 miles on it.)
So, I can keep buying cheap and used cars every few years, OR I can make payments for a new car for the first time in my life, potentially missing out on huge Bitcoin returns I could be making. This is considering that I believe the Cybertruck is an appreciating asset, as the hardware is fully capable of self-driving and that the software will only improve over time. Plus, I hope that once it's paid off, I'll be saving money gas and that I'll never have to buy another car again in my life.
However, since I expect Bitcoin to keep going up, potentially as high as $500,000 per BTC, these next few years are probably my best chance at acquiring the most BTC as I can. I'm worried I might regret spending a big chunk of it on a Cybertruck, making it a very expensive dream car down the road.
All things considered, question number 1: Do you think getting an auto loan for a Cybertruck would be worth it, if I consider it to be an investment into my dream car that I expect might even last me into retirement? (Kinda have a feeling as to what the answer might be for this one.)
Retirement
As I mentioned, according to my calculations, if I invest $1200 a month into Bitcoin with a reasonable annual growth of 20% (if not more), I should be set to retire with it.
Here's what I haven't really done the math on: is it worth investing into my 401k and IRA?
Based on my assumption of 20% returns with Bitcoin, is it worth it to reduce the amount of money I'm putting into it in order to divert enough funds to meet the minimum 401k matching my employer provides?
Here's what my employer matches:
60% of your contribution up to the first 6%
For example:
• My monthly salary is $2,000 and I contribute 6% to 401k
• My monthly contribution is $120 (2,000 x .06)
• Employer will contribute $72 to my plan (120 x .6)
**Note –if you contribute over 6%, you would see the same match amount as above**
I can choose to contribute between an "Employee Deferral" and a "Roth Deferral", of which it says:
“Employee Deferral” is a pre-tax deferral, while “Roth Deferral” is post-tax deferral
To be honest, I don't really how the pre/post-tax thing works for these 401k accounts. If I understand IRA's correctly, your Roth IRA is post-tax money so you want to max your contribution to it because it's capped, I think. You also want to contribute to your 401k up to your employer's match because that's just free money from them.
I think I get that much, but is all the tax advantages and employer contributions worth it if I can just put it in bitcoin and make 20%? How much am I really saving in taxes and is that more valuable than bitcoin, assuming that I won't have to pay taxes on the bitcoin I spend (again, not converting to USD)?
Hopefully my question makes sense and someone can help walk me through the math of it.
Self-Directed IRA's, Creating A Business and Avoiding Taxes Like A Rich Person
Finally, in regards to my third question: how do I minimize taxes like a BOSS respectable, wealthy entrepreneur?
Basically, I saw this TikTok that seemed to make sense to me: https://vm.tiktok.com/ZMeLswPwu/ Hopefully, it's not an overly simplified understanding of how taxes work, but if it is, let me know!
When I withdrew money from my 401k to invest into Bitcoin, I also looked a bit into Self-Directed IRA's, which would allow me to rollover my 401k money into it, then use it to buy Bitcoin instead of stocks/ETFs. The way that works (if I understand/remember it correctly) is something akin to: Start a business > Roll 401k into Self-Directed IRA > Use Self-Directed IRA to invest into your new company > Use that money to buy Bitcoin.
This would let you avoid being penalized for withdrawing from your 401k. I didn't go with this option at the time, though, because I didn't really understand it and thought it would take too much time. Time in which I would more than recover the 10% penalty. (Looking back at the price of Bitcoin in February of 2020, it turns out I was right.)
Anyway, does anyone have experience with Self-Directed IRA's? Do I need a company to do so? And if it is worth the investment, would that then make contributing to my 401k for the employer contribution worth it if I can direct it into Bitcoin in the end? Or not because now it would be taxable when I try to withdraw funds from it?
Also, is there any other ways having a business can save me money in the long run (as described in that TikTok)? Any answers or resources that could point me in the right direction would be helpful. I recently made a big purchase for a domain that I plan to use for a game I'm want to make. While I don't plan on monetizing the game (it will be free and open-source), I would like to write off that purchase as a business expense if I can. Also, I talk to my brother a lot about investing and he'd be down to be an employee of my company we could get tax benefits from it (I know hiring family members is common among rich people, although I don't know why, specifically).
That's about where I'm at right now as far as planning my FIRE. If you've made it this far, thank you so much for reading my story and taking the time to answer. I'm incredibly grateful to this community and the resources it provides.
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