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The Benefits of Adding Bitcoin as a 401(k) Investment Option

February 11, 2021

Bitcoin, along with other digital currencies, continue to take the financial world by storm. Rising both in popularity and demand, cryptocurrencies are becoming the can’t-miss investment opportunity of the digital era. With the value of Bitcoin recently surpassing 40.1k in January 2020, we think it’s about time the financial services industry has a serious discussion around adding Bitcoin - and other cryptocurrencies - to the long list of investment options in the average 401(k) plan.

Background on Bitcoin

Over the past decade, Bitcoin has consistently been a hot topic in the financial services industry. Since it’s creation in 2009, Bitcoin has been known for its volatility, with prices soaring one day then plummeting the next. Cryptocurrencies may be unpredictable, but the long-term gains are undeniable. It’s almost hard to imagine that in 2010, Bitcoin was trading for a mere $.08 per coin. Flashforward to February 8, 2020, and Bitcoin was changing hands at a jaw-dropping $47,000. To put that into perspective, if a person invested $1 in bitcoin in 2010, it would be worth well over $500k today.

Is Bitcoin an investment option in retirement plans?

When planning for retirement, it’s important to take a birds-eye approach and consider all the options when developing an investment strategy. That said, incorporating cryptocurrencies like Bitcoin in a traditional retirement account hasn’t even been an option on the table until recently. Due to the complex nature of retirement plan design, most retirement firms haven’t had the financial, technological, and legal capabilities needed to present these types of options to their clients. However, with the development of the world’s first Bitcoin 401(k) plan, companies that work with Leading Retirement Solutions are now able to add digital assets like Bitcoin to their nontraditional investment options.

While Bitcoin may be considered a volatile investment, the long-term returns are more than evident. It’s important to acknowledge that prior to about 12-years ago, the concept of digital currency was essentially incomprehensible to the average person. Like all revolutionary technologies, cryptocurrencies simply required time to be familiarized by the public.

“Bitcoin has matured — though it's still in an early adoption phase — and now offers significant long-term value.” -CNN

Why should employers incorporate Bitcoin in their employee benefits package?

As a business owner, you want to design a retirement plan that optimizes the benefits for both you and your employees. A 401(k) plan that is capable of incorporating nontraditional investments like Bitcoin simply expands potential growth opportunities. Obviously, not everyone is looking to bet on Bitcoin, but at least having the option available carries significant weight for employees.

Another benefit to investing in Bitcoin through a 401(k) are the tax incentives. Due to IRS official guidance on the tax treatment of Bitcoin in 2014 as property, many already had access to Bitcoin IRAs, but few were offered a Bitcoin 401(k) plan. With the Leading Bitcoin 401(k), companies can offer employees the ability to invest traditional or Roth 401(k) dollars into Bitcoin. For those that do not know, a traditional 401(k) allows pre-tax dollar investments with deferrals on income taxes until withdrawal and a Roth 401(k) allows post-tax dollar investments with no tax obligations on capital gains for qualified withdrawals.

The retirement plan administration professionals at Leading Retirement Solutions are industry experts in nontraditional investment strategies. Like many other nontraditional investments, Bitcoin can be associated with significant legal risk if not implemented into a retirement plan correctly. To avoid facing potential legal repercussions, it’s extremely important to consult a qualified retirement plan administrator, before integrating digital assets like Bitcoin into your retirement plan. Companies like LRS ensure Department of Labor and IRS compliance. Once these accounts are created, your 401(k) Plan is ready to go and can be funded on your next pay period and with rollovers/transfers from old retirement accounts, including IRAs, 401(k), 403(b), pension plans, and more!

As we continue to navigate through the digital age, conversations regarding Bitcoin and other digital assets are bound to continue. Why not innovate ahead of the curve and create an employee benefit plan that keeps up with the latest market trends?

For more tips and information regarding retirement plans, contact us.

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About The Author

Keyvan Khaki is a student at the University of Washington School of Business. He is a Brand Content and Marketing Intern at Leading Retirement Solutions. For more information on Keyvan and the work he is pursuing, be sure to check out his LinkedIn.

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