Retiring? With Bitcoin? It might be possible – both retiring and doing so with a Bitcoin allocation, that is.
Fidelity Investments is launching a new product that will allow plan sponsors to offer Bitcoin in 401(k) plans, making it the first provider to offer crypto in a retirement savings medium of this caliber. As part of it, more than 20.4 million plan participants at more than 23,000 employers could be eligible to add Bitcoin to their plan.
As you’d expect, Business intelligence firm MicroStrategy will be among the companies piloting the Bitcoin 401(K) allocation in their retirement accounts. They’ll begin offering it by the middle of this year.
401(k) plans allow employees to take a tax deduction for the money they contribute from their salary to a retirement plan. Since Fidelity is the country’s largest 401(k) provider, this Bitcoin offering will potentially “mainstream-ize” holding crypto in tax-privileged portfolios.
“There is growing interest from plan sponsors for vehicles that enable them to provide their employees access to digital assets in defined contribution plans, and in turn from individuals with an appetite to incorporate cryptocurrencies into their long-term investment strategies,” said Dave Gray, head of workplace retirement offerings and platforms at Fidelity Investments.
Through this new proprietary account, called the Digital Assets Account (DAA), companies will be able to access Bitcoin and add it to their customers’ retirement savings accounts. Fidelity does not specify how much employees can invest in cryptocurrencies in its announcement, but per media reports, employees could allocate up to 20% of their retirement fund in cryptocurrency.
Bitcoin can be added to a 401(k) plan just like any other investment. Participants can opt to direct some of their regular savings contributions directly into a Digital Asset Account (DAA), where their Bitcoin is held. Also, they can transfer money to their DAA from other investments in the plan.
Fidelity will be assisted with this plan by one of the public market’s most ardent supporters of Bitcoin — MicroStrategy, which provides embedded analytics and cloud-based services, among other things. The firm’s CEO Michael Saylor has a reputation for aggressive bitcoin acquisitions. Earlier this month, it bought 4,157 bitcoins for about $190.5 million, bringing the total number of bitcoins it currently owns to 129,218 or $5 billion.
The joint efforts of Fidelity and MicroStrategy might be a positive sign of crypto adoption, but it might encounter difficulty with authorities. Last month, the Labor Department expressed concerns about including cryptocurrencies in retirement plans. They pointed out that crypto prices are extremely volatile, so including them in 401(k) plans might not be the best idea. Their recommendation was for Fidelity to provide educational resources to inform potential investors of the inherent risk they are taking.
Labor Department’s point is valid since anyone would prefer stability and low risks after retirement. For now, the interesting thing will be whether employers will use Bitcoin for their employees, as well as how employees will react.