Be[In]Crypto Video News Show: Bitcoin 401k and the Retirement Account

What is 401k?

The 401 stands for Section 401 of the IRS Code. The k is a subsection of this code. So it’s actually a section 401, subsection k, retirement account.

401k is a qualified profit-sharing plan that allows employees to deposit part of their wages into individual accounts. The government is letting companies offer these accounts with some tax benefits in the hope that it will encourage people to save for retirement.

There are two types of 401ks. A traditional and a Roth variant. With a traditional 401k, the employee’s contributions are deducted from his taxable income. A Roth 401k allows him to pay only after tax, so he can withdraw his money tax-free in retirement. Both options have advantages and disadvantages, which should be taken into account when deciding which one is most suitable.

Once made contributions to a 401k are blocked until the contributor has reached the age of 59 and a half years. Even before that, money can already be paid out at any time, but then penalties and tax payments must be made. A 401k also has limits on the amount that can be contributed, which are updated regularly. This requires advice from a qualified tax advisor or the IRS itself.

Usually, companies regulate the 401k pension savings plans. However, private individuals also have the option of a self-managed 401k. A self-managed 401k plan allows private individuals to make their own investment decisions. These can include assets such as mutual funds, stocks and bonds. You can even invest in more unconventional assets, such as real estate and raw materials, if the employer allows. The self-managed 401k option offers more freedom, which in turn can lead to higher returns.

Bitcoin 401k

Recently, Fidelity Investments, the largest provider of retirement savings investments in the United States, announced that they will offer 401k investors the opportunity to use Bitcoin in their plans from the summer of 2022.

Fidelity is the first provider of retirement plans to take such a step. This will cause others to follow suit. This has already been shown with the recognition of Bitcoin as a legal tender. The Central African Republic followed the example of El Salvador and recently became the second country in the world to recognize Bitcoin as legal tender.

However, since 401ks are retirement accounts offered by the employer, the employer must also select them. Fidelity confirms that Bitcoin will be available to 23,000 employers using Fidelity. Given the significant financial risk and effort required to understand the investment, many will understandably not offer Bitcoin to their employees.

Nevertheless, some employers will decide to take advantage of Fidelity’s decision to offer cryptocurrencies for 401k retirement savings plans. As a result, other investment companies will also offer Bitcoin as an option for their 401k, so as not to be left behind.

Meanwhile, however, officials from the U.S. Department of Labor have a problem with Fidelity Investment offering Bitcoin as part of its 401k offerings. Among the problems that the ministry has with cryptocurrencies are their volatility and the inconsistent valuation methods that investors could use to evaluate prices.

Other Crypto Opportunities for Retirement

In addition to the 401k option for Bitcoin, there are other ways to use Bitcoin or crypto for retirement savings. In addition to the 401k, there is also an individual retirement scheme, which also offers the opportunity to take advantage of tax-deferred investments upon retirement. Companies like iTrust Capital allow individuals to invest in Bitcoin and thousands of other assets on such accounts.

Investors can also simply buy cryptocurrencies themselves and hold them until their retirement. The disadvantage is that there are no tax advantages as with a 401k. The advantage is that they can be paid out even before the age of 59 and a half.

Disclaimer

All information contained on our website is researched to the best of our knowledge and belief. The journalistic articles are for general information purposes only. Any action taken by the reader on the basis of the information found on our website is done exclusively at his own risk.