JUST IN: AltExchange Wins Wealthmanagement.com’s 2024 Wealthies Awards

Crypto Is Coming to 401(k)s: What You Need to Know

On Tuesday, April 26th, Fidelity Investments announced it would soon bring the cryptocurrency Bitcoin into its slate of traditional 401(k) investment vehicles. More than 20 million Americans have a 401(k) plan through Fidelity totaling $2.7 trillion dollars worth of assets. 

Here’s everything to know about Fidelity’s new Bitcoin offerings in retirement plans. 

How much can I contribute to crypto in my 401(k)?

Just as any other 401(k) investment, employees elect a percentage of their contribution that they would like to put towards each investment. 

Currently, Fidelity Investments will not allow any account holder to put more than 20% of their investment towards the cryptocurrency portion of their account. 

Investor trading Bitcoin cryptocurrency
Source: Unsplash

While some are criticizing Fidelity for offering “risky” investments in retirement accounts, Fidelity backs up what they are doing with the following statement:

[Bitcoin] “represents the firm’s continued commitment to evolving and broadening its digital assets offerings amidst steadily growing demand for digital assets across investor segments, and we believe that this technology and digital assets will represent a large part of the financial industry’s future.”

They claim that they are not attempting to add risk to investors’ portfolios, but to offer them the latest and most cutting-edge investment options to choose from. The company believes that despite the criticism from some, the offering will be overwhelmingly popular with their clients. 

Can I add cryptocurrencies other than Bitcoin?

Upon its initial release, Bitcoin is the only crypto included in Fidelity’s new offerings. It’s possible that they will add additional digital assets to the fund as time goes on. But Bitcoin is the most popularly-requested crypto right now and a solid starting point.

Bitcoin does carry a large risk of volatility, but it is not quite as volatile as some of the lesser-known cryptocurrencies on the market. Investors are still taking a risk if they decide to purchase Bitcoin, but the chances of a complete collapse of the coin at any point are much lower than with some other coins. 

I have a Fidelity 401(k) plan, but my employer didn’t opt in to crypto. What now?

Bitcoin investments will not be automatically available to anyone with a Fidelity 401(k) plan. 

Instead, employers will have to opt in to the program before offering the option to their employees. Thus, some employees will not have the opportunity to add crypto to their Fidelity account right away. 

But there are ways employees can request the offering regardless, including:

  1. Speak with their employer’s HR department about potentially adding more options to the 401(k) offerings that are available.
  2. Inquire about a “self-directed” option within their 401(k) program that allows them to have greater control over the investments that they select.
  3. Set up a brokerage account outside of their 401(k) to trade cryptocurrencies. (Unfortunately, this account will not be employer-sponsored, and it won’t have any of the added benefits that come with an employer-sponsored account.)

Will the Labor Department shut it down? 

One concern top of mind is if the Labor Department will put the clamp down on crypto. 

As of the time of this writing, the Labor Department has not taken any direct action against Fidelity or any other retirement plan provider to put a stop to them adding cryptocurrency to their slate of investment options.

However, the Labor Department issued a statement about its concern regarding Fidelity’s offering as well as others that may consider adding cryptocurrency to its 401(k) offerings. The department stated it will be keeping a particularly close eye on any funds that choose to offer cryptocurrency as part of their selections. It is a stark warning that may be seen as the first shot in a long war between government regulators and cryptocurrency advocates who would like to see cryptocurrencies continue to be normalized by adding them to 401(k) plans. 

Source: Unsplash

The rise in alternative investments

Just like any other investment, it’s always encouraged to consider your investment goals and objectives. Understand there is a risk loss in any investment, traditional and non-traditional, and to align your investment strategy with your personal risk tolerance.  

It’s important to note that crypto offerings in Fidelity 401(k) plans is a great step in meeting consumers’ demand for more alternative investments during particularly uncertain times in the stock market. As more and more investors are demanding alternatives, it will be up to investment providers, such as Fidelity, to meet clients where they’re looking to invest.

Schedule time with our team