What You Should Know Before Investing In Fidelity’s Bitcoin Retirement Accounts
What You Should Know Before Investing In Fidelity’s Bitcoin Retirement Accounts
This morning crypto advocates and the crypto curious alike woke up to the news that asset management giant Fidelity will start allowing investors to put bitcoin into their 401(k) retirement savings accounts. On its surface this looks like an easy way for individuals to get access to this emerging asset class in an advantageous way from a tax perspective. However, there are still some important considerations to take into account.
Here is what you need to know.
The Terms
The service will be available later this year to participants in employee-sponsored retirement plans offered by Fidelity—but only if an employer opts to offer it. Annual gains in a 401(k) are tax deferred, which eliminates the hassles associated with crypto investing and annual tax reporting. Withdrawals from a 401(k) in retirement are either taxed as ordinary income (if you contributed to a traditional pre-tax account) or tax-free (if you put after tax dollars into a Roth account).
According to The Wall Street Journal fees on these investments will range between 0.75%-0.90%, plus trading fees which falls within the mid-range of spot market trading fees offered by most major exchanges in the U.S. such as Coinbase, Gemini, Kraken, FTX.US, and Binance.US. Additionally, for now, employees will only be able to allocate a maximum of 20% of their currently account balances and new contributions to bitcoin.
You Will Likely Have To Wait Your Turn
The service is going to be slowly rolled out over the course of 2022. Currently the only firm to have publicly signed on is business analytics firm MicroStrategy. Led by billionaire bitcoin bull Michael Saylor, MicroStrategy is the world’s largest corporate holder of bitcoin with a treasury topping $5 billion worth of the asset. And again, your employer will have to agree to offer the service. Some may balk at the asset’s volatility.
Bitcoin Has Been A Zig-Zagging Rocket Ship
Back in 2013 you could purchase a single bitcoin for under $300. As of this writing, a whole bitcoin will run you approximately $40,000. This is gargantuan growth, but it has not been smooth. There have been multiple occasions where bitcoin and other leading crypto assets have lost well north of 50% of their value (many of which happened before the industry broke into the mainstream consciousness). However, many investors likely remember bitcoin approaching $20,000 in late 2017 before losing 75% of its value in the subsequent months. We saw another such drop during the late fall when bitcoin fell from $69,000 to the low $30,000s. Bitcoiners will tell you that the asset more than recovers each time that it gets knocked down. In fact, many consider riding these boom and bust cycles as a rite of passage. But it might not be for everyone.
