Cryptocurrencies can get into the pension plans of Americans. Some see this as a sound financial strategy, while others remain skeptical.
In April, US-based retirement plans provider Fidelity Investments allowed 401(k) retirement savings account holders to invest directly in bitcoin (BTC), the flagship cryptocurrency, making cryptocurrency a potential part of your own savings for the future.
A 401(k) is a retirement plan offered by many US employers that offers tax benefits to contributors and allows for several different investment options. The Fidelity move will make it easier for Bitcoin to be among those options.
In a typical 401(k) plan, employees agree that a percentage of each paycheck will go directly to an investment account created for the plan, while employers often pay some or all of employee contributions.
Fidelity is the largest provider of retirement plans in the United States, and its launch of BTC will make the cryptocurrency available to more than 40 million employees – provided 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 BTC distribution to a maximum of 20% and allows companies to make the threshold even lower. However, offering cryptocurrency options for 401(k) is not new. In June 2021, another pension plan provider, ForUsAll, partnered with Coinbase to offer access to BTC to their account holders.
ForUsAll even recently filed a lawsuit against the Department of Labor and Secretary of Labor Marty Walsh in the U.S. District Court for the District of Columbia, seeking to revoke compliance leave.
The press release states that the department’s Office of Employee Safety will “conduct an investigation program” targeting 401(k) plans related to cryptocurrencies. Speaking to Cointelegraph, ForUsAll CEO Jeff Schulte said the government is “trying to limit the types of investments Americans can make because today they’ve decided they don’t like a certain asset class.”
Aside from issues with government exaggerations, it’s also important to consider whether adding crypto assets to a retirement plan is a good idea. The Bitcoin network has been around for over a decade and has outperformed every other asset class to date, but as any analyst will tell you, past performance is no guarantee of future performance.
Cryptocurrency volatility and 401(k) plans
Considering that bitcoin and crypto assets in general are recent financial experiments that started just over a decade ago, some investors may 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 prove disastrous before a person retires.
While employees aren’t forced to give up their 401(k) plans when they retire, the point of money is to keep them comfortable in their twilight years. 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 “increasing talk about the adoption of digital assets and their growing 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 we’re going through in this country [US] has to do with not participating in the 401(k).” He added that such moves could be a way to reach new generations through his employer-sponsored schemes and help Americans retire, while reaffirming the sustainability and relevance of crypto assets. Kline added:
“Cryptocurrency is certainly volatile, but its resilience and relevance over its short existence is remarkable. Some kind of presence