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How to Invest in Bitcoin With Your 401(k)

Donny Gamble
January 7, 2022
Bitcoin in 401(k)
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Bitcoin is the investment phenomenon that has rocked the last decade, and there’s no chance of it slowing down. We all know about diversifying your portfolio for retirement, but can you do that with Bitcoin effectively?

Yes, you can, but there’s a lot of important information to know before you decide to go full-steam ahead on this idea. A Bitcoin 401(k) has its own risks, just like any crypto 401(k), and is labeled as personal property by the IRS.

You’re not dealing with stocks, bonds, or gold in a 401(k) account; Bitcoin is volatile, and hard to predict. We have to prepare you for every obstacle you’re going to face, and why you may end up going for a Bitcoin IRA instead of a Bitcoin 401(k).

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A 401(k) Plan Might Not Allow Bitcoin

401(k) plans are there so that your employer can match your contributions to your retirement, but part of the issue with that is they get to choose how they contribute. 

They’ll match you dollar for dollar in many situations (up to a certain amount).  But they choose to match the dollars, not the assets, and Bitcoin is considered personal property, much like gold bullion

When you dip your toes into assets, it creates more work for the employer, and then they can’t contribute cash. If they’re not matching your contribution, they don’t receive their tax benefits.

When the price of an asset rises or falls, it can complicate matters and impact the way that they receive their incentive for matching your contribution.

Cash is easier because we know its value, we know what inflation is, and it’s liquidated, so there’s no chance of it rising or falling like a stock.

Fees Are Vastly Different From Stocks or Gold 401(k) Accounts

Part of the reason they don’t want to match Bitcoin is because of the added fees. Matching your dollars is simple, but when you purchase Bitcoin to contribute to your 401(k), purchase order fees and cold storage deposit fees are involved.

Because it’s a decentralized currency, it has its own value no matter what the US government says. They can’t just change the fed rates and alter the price of Bitcoin like they can with cash; there’s no way to just print Bitcoin, so because of this there are additional fees that go into place to regulate everything.

While some employers may offer the option to defer those costs and fees unto you, then it becomes a weekly thing. That’s more work for them, more money for you, and an overall hassle.

This is why it ends up coming down to a self-directed Bitcoin IRA more often than not.

Pros & Cons of Investing in Bitcoin in Your 401(k)

Bitcoin is great, but there are downsides when you contribute it to your 401(k). Let’s go over those now.

  • Portfolio Diversification: You should never bet the house. Solely having liquid cash in your 401(k) isn’t a wise move, so it’s good to move it around a bit.
  • It’s Still Growing: More and more nations are making Bitcoin legal tender, which is great, but it's volatility makes it more of an asset than a currency. Also, some nations are banning Bitcoin.
  • Avoid Capital Gains: Your 401(k) should be used for your retirement, and if done properly, you’ll be able to avoid capital gains tax when it’s time to benefit from it and live off of your earnings.
  • Hard Sell for Retirees: Your 401(k) is all about the future, but what happens if you spend ten year investing in Bitcoin only for it to fall? Your investment isn’t guaranteed.
  • Expensive Cold Storage: In a retirement account, you’ll want to utilize cold storage, but it can be expensive and make it difficult to access your assets should you need to in a pinch.
  • Fees: We’ve already talked about fees, but seriously, it’s not what you run into when you’re dealing in stocks and bonds. They can really add up.

Should You Invest in Bitcoin in Your 401(k)?

Bitcoin isn’t widely supported in most 401(k) plans, but the number of businesses supporting cryptocurrency is rising. It’s expected that Bitcoin will be as normal of an investment as gold in the future, although there’s no clear date or prediction.

Including Bitcoin in your 401(k) is a good idea, but it should be a diversified portfolio for you’re not putting all your bets on one horse. While Bitcoin can be a good idea, it’s extreme volatility makes it difficult to gauge, so you’ll get a mixed bag of investors and financial advisors telling you whether or not to go with it.

Ultimately, it’s up to you, but with the way Bitcoin and cryptocurrency in general has been rising, you should find a way to invest in some fashion.

Bitcoin 401(k) FAQ's

What are the benefits of buying Bitcoin for a 401(k)?

Bitcoin has a volatile history, but one that tends to favor price increases and a stronger presence in the market. It’s known by everyone and highly accessible, and doesn’t rely on the economic practices of gold or stocks.

Even if one economy falls, another may not, and so the price of Bitcoin will only shift and move very slightly. Having the ability to utilize this as currency instead of just an asset, should the time be needed to do this, makes it flexible in ways that other assets simply aren’t.

Can I add crypto to my Bitcoin 401(k)?

Yes, you can add more cryptocurrency to your 401(k) if the plan supports it. The IRS deems it as personal property, so as it is your asset, you can do whatever you’d like with it.

Not all 401(k) plans are going to support it, however, because some of them make money off of the commission for buying the cryptocurrency for you, using your retirement funds at your discretion.

If you want to add crypto to your Bitcoin 401(k), you have to purchase it separately and go through your 401(k) holder to transfer it. The downside is that the initial purchase is not tax-deferred, whereas buying it with 401(k) funds is tax-deferred.

Where can I have a Bitcoin 401(k)?

Most of the time, you can’t buy digital currency with your 401(k). Some financial institutions are still coming around to the idea, so you end up rolling over your 401(k) into a self-directed IRA account. Most of these allow you to buy digital currency.

You can do it through an approved, insured, and accredited Bitcoin IRA company (psst, we have a list of the best right here). These companies specifically deal with Bitcoin and cryptocurrency, so you won’t run into any crazy obstacles if you jump in with both feet.

Can I buy Bitcoin in a retirement account?

If that retirement account is a self-directed IRA, then yes, you can. Typically, your 401(k) is handled for you (for the most part), so the investments you make will be heavily cash-based.

Personal property or collectible-based 401(k) programs are few and far between. The more features they add, the more they become like a self-directed IRA account.

If you want to be in full control of what you do with your assets and money in your retirement account, you may need to seek a self-directed IRA instead of a 401(k) that includes assets.

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About the author 

Donny Gamble

I’m Donny. I’m a world traveler, investor, entrepreneur, and online marketing aficionado who has a big appetite to compete and disrupt big markets. I thrive on being able to create things that impact change, difficult challenges, and being able to add value in negative situations.

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