Cryptocurrencies may show up in Americans’ retirement plans. Some see it as a sound financial strategy, while others remain skeptical.
In April, US-based retirement plan provider Fidelity Investments allowed 401(k) retirement savings account holders to invest directly in Bitcoin (BTC), the flagship cryptocurrency, making the cryptocurrency a potential part of savings for the future .
A 401(k) is a retirement plan offered by many employers in the United States that offers tax benefits to contributors and allows for several different investment options. The Fidelity move will make it easier for Bitcoin to be one of those options.
In a typical 401(k) plan, employees agree that a percentage of each paycheck will be deposited directly into an investment account established for the plan, while employers often pay some or all of the employee contributions.
Fidelity is the largest provider of retirement plans in the United States, and its BTC launch will make the cryptocurrency available to more than 40 million employees – assuming their employers choose to offer it. Investors who take advantage of this initiative can effectively become tax-deferred long-term holders of BTC by withdrawing coins from circulation on a monthly basis.
The company’s plan limits the distribution of BTC to 20% and allows companies to make the threshold even lower. However, offering cryptocurrency options for 401(k) is not new. In June 2021, another retirement plan provider, ForUsAll, partnered with Coinbase to offer its account holders access to BTC.
ForUsAll even recently filed a lawsuit against the Department of Labor and Secretary of Labor Marty Walsh in the US District Court for the District of Columbia to reverse the waiver of compliance assistance.
The press release states that the department’s Employee Benefits Security Administration “will conduct a program of investigations aimed at” 401(k) plans involving cryptocurrencies. Speaking to Cointelegraph, Jeff Schulte, CEO of ForUsAll, said the government is “trying to limit the type of investment Americans can choose because today they decided they didn’t like a certain asset class.”
In addition to questions about state abuse, it is also necessary to consider whether it makes sense to include crypto assets in a pension plan. The Bitcoin network has been around for over a decade and has outperformed every other asset class, but as any analyst will tell you, past performance is no guarantee of future performance.
Cryptocurrency Volatility and 401(k) Plans
Given that bitcoin, and crypto assets in general, are recent financial experiments dating back just over a decade, some investors might find digital currencies too risky. Cryptocurrencies can be very volatile and have been known to drop in value by as much as 80% during bear markets, which can be catastrophic before anyone retires.
While employees aren’t forced to give up their 401(k) plans when they retire, money is about keeping them comfortable throughout their years of life. Waiting for the market to recover or simply accepting such significant losses can be devastating.
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Chris Kline, co-founder and COO of Bitcoin IRA, a cryptocurrency-focused personal retirement account provider, told Cointelegraph that there is “a growing conversation about the adoption of digital assets and their increasing use.”
Kline pointed to Senator Tommy Tuberville of Alabama, who recently introduced a Financial Freedom Act bill that would allow Americans to add cryptocurrencies to their 401(k) retirement savings plans.
According to Kline, “Part of the retirement crisis in this country [US] has to do with a lack of 401(k) participation.” He added that such moves could be a way to engage new generations in their employer-sponsored plans and help Americans retire, while also showing the resilience and relevance of cryptoassets. Kline added:
“Cryptocurrency is certainly volatile, but its resilience and relevance in its short existence is amazing. At least some experience – and more importantly, experience in crypto – is becoming paramount to modern investing.”
Cryptocurrencies can have the same devastating effects on money
