A new executive order signed by President Donald Trump will allow retirement accounts to include alternative investments, including cryptocurrency. This could mean employees making elections in their 401(k) could soon see an option for digital currency investments.
“What this may do is allow a plan sponsor to include some of these riskier asset classes in the 401(k),” said Barry Glassman, president of Virginia-based Glassman Wealth Services.
Glassman said with the executive order, the Department of Labor would redefine what asset classes are acceptable.
“In the past, we’ve seen stocks, we’ve seen bonds, U.S. foreign, large cap, small cap, and some alternative strategies, but nothing as different as private equity and cryptocurrency,” he said.
For those unfamiliar with crypto, Glassman said it should be thought of more as “a collectible” than something like a stock.
“It’s more similar to things like gold and silver and bottles of wine than it is to stocks and bonds,” Glassman said.
But some of the allure of the digital asset is its utility, meaning it doesn’t present the same difficulties of moving gold around with you. With crypto, such as Bitcoin, it lives on the blockchain and can be used anywhere around the globe.
Glassman said for the companies that roll out the crypto options, your choices will probably be the big players, such as Bitcoin and Ethereum.
“I doubt plan sponsors will go deep into ‘meme coins’ or anything like that,” Glassman said.
For those who may choose to put a portion of their retirement into the digital realm, Glassman said he believes younger investors in their 20s and 30s will lead the charge.
“They’re used to it, and the idea that their retirement account may build up over time, and may, in fact, be their largest asset at some point,” he said. “It behooves them to have it available in a retirement account.”
One benefit for those who want to invest in crypto is there may be tax advantages for including them in their 401(k), because, like stocks, you would only face taxes when you pull your money out.
“So, if people invest in Bitcoin and it goes up in value and they sell within their 401(k), they’re not taxed on it,” Glassman said.
If available down the road to employees, Glassman said he doesn’t believe everyone will go in heavy on cryptocurrency in their retirement accounts.
“The amount of crypto owned within retirement accounts, in my opinion, will still be relatively small compared to the amount of crypto out there in nonretirement accounts,” he said of the future under the executive order.
Glassman said there is another concern — people not waiting until the right time to invest in crypto.
“My concern is with crypto trading near all-time highs, there’s a far greater chance that people are interested and if this was available today, in 401(k)s, they would plow into it today, versus maybe a time when it dips,” Glassman said.
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