The Fidelity 401(k) Allows Crypto But How Does It Work?

The Fidelity 401(k) Allows Crypto But How Does It Work

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In early 2022, Fidelity became the first major financial services firm to offer investors the chance to add crypto assets to their 401(k) retirement accounts.

The Fidelity 401(k) Allows Crypto But How Does It Work?

The company is a giant in the retirement business, holding more than $2 trillion in 401(k) assets, and administers the pension plans of more than 23,000 companies across the country.

The company announced in April that by late 2022, employees will be able to add Bitcoin to their 401(k) accounts—if their employer allows it.3

Though this move was certainly a milestone for crypto, many analysts have been quick to point out that cryptocurrencies may be a poor choice for investors looking to build value over the long term.

KEY TAKEAWAYS

  • In early 2022, Fidelity Investments became the first firm to announce that employees could add crypto—in the form of Bitcoin—to their 401(k) accounts.
  • The company will make this available to all 23,000 employers for which it oversees 401(k), and this is expected to be ready in the summer of 2022.
  • Ultimately, it will depend on employers as to whether employees can add Bitcoin to their retirement accounts. Employers have a responsibility to offer “prudent” investment options in their 401(k) accounts, and at the moment, the Department of Labor has implicitly said that crypto doesn’t meet this test.
  • It remains to be seen, however, how many employers will allow their staff to buy Bitcoin in this way and at what volume.

Fidelity Investments is one of the largest providers of 401(k) accounts in the U.S., and they are well known for their extensive portfolio of mutual funds and other investment options. Now they're adding one more asset—Bitcoin.

Fidelity announced in April 2022 that they will be introducing a digital assets account option alongside their more traditional accounts. This will allow employees with 401(k) accounts to add Bitcoin to them, for which they will be charged an account fee of between 0.75% and 0.9% of funds invested in the digital asset account. There will also be a trading fee, but the amount of this has not yet been announced.

It’s expected that Fidelity’s digital asset account will be ready for use in the summer of 2022.

At that point, employees with a Fidelity 401(k) account may be able to allocate a percentage of their account to Bitcoin, but only if their employer allows them to make such a designation. Ultimately, it is employers who have the final say in whether their employees will be able to add Bitcoin to their retirement accounts, and this may impose a significant bar on the widespread adoption of crypto in these accounts.

Employers will likely require employees to specify what percentage of their contributions should go directly toward Bitcoin during the enrollment process, which means that they will not be able to change this allocation once they sign up for the service. With this approach, employers would also need to make sure that they have sufficient funds available in their own accounts before allowing their employees access to crypto.

Even if employers allow employees to add Bitcoin to their Fidelity 401(k) accounts, the level at which they will be able to do so will be limited. Fidelity says that the option to buy Bitcoin will be integrated right into its 401(k) investment menu, and so buying crypto will be as easy as buying shares in mutual funds, except that the percentage of a retirement portfolio that is held as crypto will be limited. The employer will determine the ceiling, but the platform won’t permit allocations of more than 20%, although that number could change.

The company has also decided not to offer an exchange-traded fund (ETF) for now, although it may do so in the future if there is enough demand for one. Fidelity has been offering access to an index fund for cryptocurrencies since last year via a partnership with Coinbase.

Though it may be possible to add Bitcoin to your 401(k) retirement portfolio at some point during the summer of 2022, you should think carefully about doing so. Though Bitcoin has made some spectacular gains over the past decade, it’s widely regarded as too volatile to make for a responsible retirement investment.

The Fidelity 401(k) that allows crypto is just one of several companies that have begun offering cryptocurrency options for investors looking for a diversified portfolio. With a wide range of cryptocurrencies available, from the most popular ones like Bitcoin and Ethereum to niche coins like Ripple and Zcash, there’s no shortage of options available when you invest through your 401(k).

This is our disclosure:  This summary is for informational purposes only. This summary is not intended to be a recommendation for or give advice for any company or individual.

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Nicole Jolie

Nicole Jolie brings you updated information on retirement including where to travel, health, investment trends and planning.  Whether you're a GenX'er, Baby Boomer or about to retire this site is for you.

 

This is our disclosure:  This summary is for informational purposes only. This summary is not intended to be a recommendation for or give advice for any company or individual.

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