Today we shall be answering the question “ Can I convert my 401k savings to bitcoin”. Even though you do not end up becoming extremely wealthy through investing in Bitcoin, you might end up building an impressive retirement investment portfolio simply by purchasing Bitcoin with your 401k. Is it really possible to achieve this? Read on to find out.
Investing in Bitcoin, which is one of the 1500+ cryptocurrencies that are available in the present-day world, is bound to present a number of benefits to you that other assets may not come close to. By investing the funds in your 401k in Bitcoin ( you can do this by simply converting your current retirement plan into a self-directed IRA), you gain more freedom to make choices related to the state of your portfolio. Essentially, opening a self-directed IRA gives you more options when it comes to your retirement plan, in a manner that any other conventional IRA cannot.
There are, however, some other details that you will need to consider before rolling over the funds in your 401(k) into a Bitcoin IRA.
What you need to know about your 401k options
With a typical 401k, companies usually offer their employees a limited list of choices into which they can put their money. In most cases, the best they can get is ETFs and Mutual Funds. Some of them may give their employees the option to invest in company stocks as well. Only very few employers will allow the employees to invest in any type of asset. This is all thanks to the Employee Retirement Income Security Act of 1974 (1974).
With this law, the rank-and-file worker’s retirement savings are usually protected in a variety of ways, including the requirement of plan trustees (the employers) to act as fiduciaries. This essentially means that they are required by the law to take thorough care of the employees’ funds. If they do not meet this obligation, they can be held liable for all losses on the side of the employee.
One of the very common reasons that 401(k) account owners sue their employers is usually due to poor choice of investments ( which eventually lead to massive losses). Their argument at this juncture is usually that their employer ( or the financial advisor entrusted with making a decision on investment options) is not taking the right approach to choose their securities, and is exposing them to undue risk levels that are bound to make them lose their hard-earned money.
No business owner will, of course, want to be in a situation in which they are being sued, which is why they generally tend to stay clear of any risky investment option. This is probably why your employer won’t allow you to invest in Bitcoin through your 401(k).
Remember – No Investment is Risk-Free!
So far, if you have been following Bitcoin prices, you can tell that they are to a great extent based on speculation. It is, for instance, expected that Bitcoin will cross the $100,000 per token mark. There are also those who think that the use of cryptocurrencies will eventually die down, and lead to a decline in the value of all tokens. Overall, I think we can all agree on the fact that no investment is risk-free, and that the same risks borne by cryptocurrencies are also borne by stocks ( as has been proven during global recessions when all stock prices tank).
Most asset prices are speculative, besides some very stable assets such as gold whose prices tend to gradually rise ( and to move in the opposite direction with stocks) during an economic crisis. One may need to research which assets they want to include in their retirement investment portfolio, but I would recommend diversification, as an approach to ensuring that investor sails through the tough economic times without worrying that they’ll lose all their wealth.
Diversification will always ensure that even as some assets perform poorly, the others will be doing great, and the net effect will be slow growth ( or minimal losses).
Is there a way in which you can invest your retirement savings in Bitcoin?
If you have done your research and established that Bitcoin is worth holding in your retirement portfolio, then there are ways in which you can use your retirement savings to get started. If you have an employer that offers you a self-directed 401(k), you have a chance at purchasing cryptocurrencies directly through it. You can confirm with the Human Resource department whether this option is available at your company, or you can request that this option be availed if it is not already available.
You can also decide to open your self-directed IRA. Opening an SDIRA is similar to opening a regular IRA, with the only difference coming in with the type of assets that you can invest using the SDIRA. SDIRAs are not as common as the regular IRAs (Traditional and Roth IRAs), so you will have to do your due diligence as to which SDIRA service provider will have your best interests at heart. Also, do not forget to confirm that cryptos are supported by the SDIRA service provider, to avoid any awkward surprises later on.
Consider future investment choices
You should know that not all self-directed IRAs offer the same investment choices, hence the need to not just open an account blindly. Even though you have established that the company can let you invest in a particular asset, you can also request to know which other assets they can allow you to also invest in, in the future, if you need to diversify your portfolio.
If you do not want to jeopardize your retirement savings, you can try to invest any extra money that you have through a cryptocurrency exchange, though I can bet you that you may end up encountering almost similar risks. Besides, investing in Bitcoin through an SDIRA will present some tax advantages that you would otherwise not get if you decided to go the crypto exchange way.
Whatever option you decide to go with, do not forget that your retirement savings will be your financial lifeline when you get to your senior years, so you cannot afford to gamble with them. Think carefully about the type of investment you will put your retirement savings into, and always seek a third-party opinion. If you have decided that you will invest in Bitcoin by opening an SDIRA to roll over your 401 (k) funds into, then try to ensure that you do not invest more than 10% of your wealth in cryptos (the same applies to other assets).
OR maybe you are interested in another good old alternative asset:
That will be all for today’s article, which sought to respond to the question on “Can I convert my 401k savings to bitcoin”. I hope it was beneficial and that you are now in a better position to proceed with the opening of your SDIRA. If you need any suggestions or recommendations, let me know – simply drop your question in the comments section and I’ll get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!