Bitcoin 401k: Investing In BTC With Your 401(k)
Investing in bitcoin has several retirement benefits that traditional asset classes cannot match.
You gain a significant amount of financial freedom by investing your 401(k) funds in bitcoin (which can be accomplished by converting your retirement plan to a self-directed IRA). That is because you will choose from a broader range of retirement plan options than is typically available in the market.
However, there are many additional factors to consider before rolling over your 401(k) to a Bitcoin IRA. Self-directed IRAs (SDIRAs) are relatively unknown types of IRA that provide access to asset classes that stimulate extraordinary growth. Therefore, before making a decision, you should thoroughly understand everything there is to know about this one-of-a-kind opportunity.
Finally, because the majority of people are unfamiliar with the process of converting their 401(k) savings to digital currency such as bitcoin core (the original bitcoin).
How to Invest in Bitcoin through your 401k
While the average American may not be as committed to investing like Warren Buffet or Paul Tudor Jones, they do have something extraordinary – 401k and IRA accounts. Not only do these vehicles enable Americans to purchase alternative assets such as Bitcoin, but they also allow for tax-free growth through Roth options and tax-deferred growth through Traditional options. Those interested in investing in Bitcoin through their 401k need to perform a rollover into a Crypto IRA.
If you meet one of the following two criteria, you are likely eligible to convert your 401k to a Crypto IRA:
- You have a 401(k) account from a previous employer.
- You are older than 59.5 years.
Consider the following additional factors before Investing in Bitcoin With Your 401(k):
You can always pay the early withdrawal fee and then purchase your cryptocurrency. In some cases, such as if you have a low taxable income this year, doing this with a small portion of funds may make sense. Do you want to pay a 15% fee to a Custodian, or do you want to own your cryptocurrency with no additional rules and pay the 10% early withdrawal penalty? Neither of those alternatives is ideal, but you should weigh your options.
Cryptocurrency is insanely volatile, which is not a characteristic you want in a long-term investment in your retirement account. Although cryptocurrency may be a prudent asset to add to your retirement portfolio as a long-term investment made in small increments over time, it is a risky bet. Any price you pay today may turn out to be cheap or expensive in the long run. There is no way to tell, as the market is still in its infancy.
The most critical cryptocurrency to own in the long term is subject to change. Ethereum and Bitcoin are the preferred assets for a portfolio, but this may change over time. It would be highly frustrating to build a position in one of these coins only to discover that tomorrow’s top coin is another coin. One could diversify, but all cryptocurrencies on the market today face the same risk.
NOTE: Because the fees and custodial nature of some retirement account options make actively trading cryptocurrency nearly impossible, there is an additional issue here. If you manage your account actively, either alone or with the assistance of a manager, cryptocurrency begins to make sense. In other words, if you are willing to sell cryptocurrency and buy dollars at the next high, your cryptocurrency investment makes more sense. The likelihood that we will see higher prices than we do today in the coming months or years is probably a safer bet than betting that any fee paid now will pay off in 5, 10, or 30 years. Digital currency is a relatively new concept; it could be a fad (it is unlikely, but we cannot rule it out entirely).
Cryptocurrency can quickly become expensive; try to avoid the mania and keep your cryptocurrency spending to a manageable percentage of your total investable funds. Generally, it is not a wise move to place all of your eggs in one basket. Cryptocurrency is an example of such a basket. Because the market tends to move in lockstep, diversifying within the crypto space will likely provide negligible risk diversification.
Nobody does anything for free; you will incur fees if you have a self-directed IRA solely dedicated to cryptocurrency. Payments will be charged by companies that assist you in managing your funds. If you hire a fiduciary to help you invest in various assets, you will only pay one set of fees.
Storing and safeguarding cryptocurrency is not an easy task; there is always the possibility of making a mistake and losing everything. A Bitcoin cannot be insured. You’ll need to devise a storage solution or partner with an entity that does. If you lose a Bitcoin, it is permanently lost. There are several factors to consider here in addition to whether or not the cryptocurrency will increase in value. The companies specializing in crypto IRAs can assist with storage, but again, there will be fees (and, if the company eventually closes its doors, there may be issues; all of these IRA crypto companies are new!)