When Will Bitcoin Make Its Way to 401(k) Plans?
If you're itching to get into the bitcoin game within your company’s retirement plan, cool your jets. There are plenty of reasons why it's not possible yet.
Bitcoin has been one of the hottest financial topics of discussion lately. The skyrocketing value enticed curious investors to look into the cryptocurrency and spurred people to ask about adding bitcoin to their 401(k)s or other retirement savings plans. The interest has somewhat dampened since the precipitous drop in January 2018, but the questions still linger.
The currency, and the multitude of other cryptocurrencies that have sprung up, relies on blockchain technology, a computerized ledger system that processes transactions (completed blocks) via secured wallets and keys.
The three biggest differences between cryptocurrencies and traditional government-issued currency are:
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- Cryptocurrencies are digital and stored on a blockchain.
- Cryptocurrencies have zero government oversight.
- Bitcoin supply is limited or defined based on mining, unlike government-issued currency, which governments can print more of or shrink supply based on demand.
If you are not mining bitcoin, the purchase process is similar to valuing and purchasing art, which is one of the reasons the government treats bitcoin as property for tax purposes. The value of cryptocurrency is pure supply and demand and is based on an individual transaction at an exchange with your standard currency. With bitcoin, exchanges at any given moment in time can vary greatly.
Issues for 401(k) sponsors and participants.
How can a plan offer bitcoin to their participants? Currently, no mutual fund, collective investment fund or ETF in the United States has a fund exclusively invested in bitcoin or cryptocurrency.
Since a vast majority of 401(k) plans use these types of funds to trade daily for participants, bitcoin will not be a mainstream investment option. It is possible to purchase bitcoin futures on certain exchanges, however these can only be accessed by brokerage accounts that permit purchases in these exchanges.
Many plan sponsors that offer brokerage accounts restrict purchases to mainstream investments, such as mutual funds, ETFs and the major stock exchanges. Taking this down a different road, bitcoin owners store and track the bitcoin in wallets. A plan sponsor generally holds one position of each security on behalf of all participants. That means someone must hold the password for the wallet, which could be the plan sponsor or their selected recordkeeping service provider.
Think about the difficulties of trading between a mutual fund and a bitcoin wallet. There is no market close on bitcoin like there is with mutual funds, nor is there one recognized price or trading price.
The fiduciary element.
However, the greater consideration for plan fiduciaries is they must act as in the best interest of plan participants. The question a fiduciary must ask: Do they want to permit investments that are not regulated in any way, shape or form by any government? One can argue the futures exchange is regulated, it is, but the underlying investment is not.
Here’s another way to look at this from a fiduciary perspective. Traditional investments, such as bank or money market accounts, have protections by the FDIC. Investments in brokerage accounts or mutual funds whereby assets go missing are protected by the Securities Investor Protection Corp. (SIPC). Both the FDIC and SIPC have maximum protection per investor (the investor in a 401(k) plan is the plan, not the participant).
Bitcoin has zero protection for the investor in the event of fraud or a heist of your wallet. In addition, your bitcoin wallet has one password that is super long, and there is no password reset. If that password is ever lost, your bitcoin is lost! This is wide open for fraud at the 401(k) level, as to who should hold the password for the plan.
Taking it a step further, what if plan sponsors permitted each participant to have their own wallet and then they lost their wallet? In a litigious society, you know where this is going. An estimated 25% of bitcoins that were in circulation — $18 billion in value — are unrecoverable because of lost keys or wallets.
As fiduciaries, plan sponsors will be reluctant to offer a cryptocurrency as an investment option because of the volatility, lack of risk analysis, lack of government oversight and the hassle factor involved in administration.
Bitcoin is available for investment with your monies outside of a company plan. For example, you can already access it through a self-directed IRA, which could be a good option as it encourages investors to do this outside their 401(k) with IRA or after-tax monies. Since sponsors of 401(k) plans face potential litigation from participants related to their fiduciary responsibility, you will most likely not see bitcoin as an investment option until there is government oversight and efficient trading platforms within a 401(k) plan.
-
Stocks Chop as the Unemployment Rate Jumps: Stock Market TodayNovember job growth was stronger than expected, but sharp losses in October and a rising unemployment rate are worrying market participants.
-
Should You Renew Your CD?With rate cuts impacting earnings, we examine if now is a wise time to renew CDs.
-
7 Ways to Plan Now to Save on Medicare IRMAA Surcharges LaterUnderstand the critical two-year lookback period and why aggressive planning before you enroll in Medicare is the most effective way to minimize IRMAA.
-
Your Year-End Tax and Estate Planning Review Just Got UrgentChanging tax rules and falling interest rates mean financial planning is more important than ever as 2025 ends. There's still time to make these five key moves.
-
What Makes This Business So Successful? We Find Out From the Founder's KidsThe children of Morgan Clayton share how their father's wisdom, life experience and caring nature have turned their family business into a respected powerhouse.
-
Past Performance Is Not Indicative of Your Financial Adviser's ExpertiseMany people find a financial adviser by searching online or asking for referrals from friends or family. This can actually end up costing you big-time.
-
I'm a Financial Planner: If You're Not Doing Roth Conversions, You Need to Read ThisRoth conversions and other Roth strategies can be complex, but don't dismiss these tax planning tools outright. They could really work for you and your heirs.
-
Could Traditional Retirement Expectations Be Killing Us? A Retirement Psychologist Makes the CaseA retirement psychologist makes the case: A fulfilling retirement begins with a blueprint for living, rather than simply the accumulation of a large nest egg.
-
I'm a Financial Adviser: This Is How You Can Adapt to Social Security UncertaintyRather than letting the unknowns make you anxious, focus on building a flexible income strategy that can adapt to possible future Social Security changes.
-
I'm a Financial Planner for Millionaires: Here's How to Give Your Kids Cash Gifts Without Triggering IRS PaperworkMost people can gift large sums without paying tax or filing a return, especially by structuring gifts across two tax years or splitting gifts with a spouse.
-
'Boomer Candy' Investments Might Seem Sweet, But They Can Have a Sour AftertasteProducts such as index annuities, structured notes and buffered ETFs might seem appealing, but sometimes they can rob you of flexibility and trap your capital.
