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Crypto in Your 401(k)? Why It’s Not Such a Crazy Idea

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Crypto is everywhere. And now, it can even be in your retirement account!

Fidelity — a massive financial firm that offers retirement accounts, among other products and services — recently announced that it will introduce a digital assets account to hold Bitcoin. This means that people with retirement accounts may be able to invest in crypto (Bitcoin, specifically) if their employers allow it. And, it allows them to do so without setting up an account on a crypto exchange.

“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, according to a company press release.

So, you may soon be able to invest your retirement savings in Bitcoin. But should you? Is it a good idea? If you were planning on buying Bitcoin anyway, does it make sense to do it through your 401(k)?

Here are a few reasons that it may be a good idea:

It’s a long-term investment

The good thing about retirement accounts is that they’re designed for long-term investments. Many financial professionals will tell you that you should be investing for the long-term anyway, and investing in crypto through a retirement account does that for you. Remember: If you do want to withdraw your money early, you’ll end up paying taxes and penalties. 

The big question, of course, is whether crypto will be around in a few decades. Nobody knows for sure, but if it is, a long position on Bitcoin is likely to pay off more than a short-term play in the markets. 

Diversification

Diversification is another critical component to an investing strategy. And it’s another important thing to keep in mind when investing in crypto. Would you put all of your money into the crypto market? Absolutely not — because if the price of BTC ends up taking a hit, your whole portfolio will go down with it. 

Retirement accounts let you choose how you want to invest your money, and most offer a range of diversified choices. For most young people, it’s probably going to be heavy in stocks.

But as long as you remain diversified, putting a percentage of your retirement account in the crypto market may not be a bad idea. Again, that doesn’t mean there aren’t risks — there definitely are — but that’s why you’re remaining diversified, right?

Tax advantages

Retirement accounts offer certain tax advantages — advantages that brokerage accounts don’t offer. Depending on the type of 401(k) or IRA you have, you may elect to pay taxes on your investments in the future. This can be a great advantage for crypto investors, as you save some on taxes today and can invest the difference. You will pay income taxes when you cash out in the future, but this means you avoid a second capital gain tax. 

Again, this all isn’t to say that you should or shouldn’t invest in crypto. Or that there aren’t risks. There are a lot of risks in the crypto market, and investors should be aware of that. But crypto is going mainstream, and if you want to get your feet wet, it may soon be possible to do so using your retirement account.

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