401(k) Upcoming Cryptocurrency Option

401,000 contributions

The 401(k) cryptocurrency option is almost a reality! Plan managers now have a new asset to study, decide and measure. Plan administrators need to learn the quirks of the 401(k) cryptocurrency option. Some 401(k) plan participants will soon be able to invest in Bitcoin through their retirement plan. This investment option will be available mid-year with Fidelity, the nation’s largest 401(k) provider, according to a recent Fortune article

Plan sponsors must register in order for Bitcoin to be available as a 401(k) cryptocurrency option. Limits are expected to be placed on the amount and types of cryptocurrency that employees are allowed to invest in, on their 401(k) accounts in their workplace. This seismic shift from Fidelity could allow millions of retirees to invest in Bitcoin without having to set up a separate account on a cryptocurrency exchange. Plan participants can invest in Bitcoin through the “Digital asset account† This 401(k) cryptocurrency option will be part of their 401(k) investment offering. This account will also hold short-term money market investments to provide the necessary liquidity for Bitcoin purchases.

Employers have the option to limit the amount an employee can contribute to Bitcoin. Fidelity’s platform does not allow more than 20% of a participant’s contributions to be allocated to cryptocurrency. The company may also offer additional cryptocurrency options to 401(k) investors in the future. The account fees vary between 0.75% and 0.90% of the account assets, depending on a New York Times Report quoted in Fortune.

Surprisingly, Fidelity’s decision follows a recent announcement by the Ministry of Labor (DOL)† The DOL expressed “serious concern about the plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets.” The problem is that the majority of participants in the 401(k) plan are novice investors; Bitcoin is a fairly volatile investment, which can cause participants to panic or exit their positions prematurely, jeopardizing their long-term returns and savings goals. Additionally, financial advisors often recommend not investing 100% in digital assets before retirement — another potential risk for 401(k) participants.

Nevertheless, Fidelity claimed that participants want the option to invest in Bitcoin in their 401(k) plans, and that they can take advantage of dollar cost averaging and tax-deferred savings if they do so in their retirement plans at work. Additionally, plan sponsors and participants want Bitcoin to be an investment option in their 401(k) plans, according to Fidelity.

Fidelity is the first high-profile retirement plan provider to offer Bitcoin in its 401(k) plans, according to Fortune. However, other providers are likely to follow. Plan sponsors interested in offering 401(k) cryptocurrency as an investment option in their 401(k) plans should closely monitor the Fidelity model. As with any retirement plan investment decision, it makes sense to seek the help of a qualified retirement plan advisor. the list of 401(k) certified professionals, C(k)P Holders of the title is a good starting point. Another prudent strategy is to contact ERISA Counsel to ensure you have identified all applicable risks associated with using cryptocurrency as an option under the qualified plan.

Steff Chalk

Steff Chalk

Steff C. Chalk is Executive Director of The Retirement Advisor University, a partnership with UCLA Anderson School of Management Executive Education. Steff is also Executive Director of The Plan Sponsor University and is currently a professor at The Retirement Adviser University.

Steff Chalk

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