- Fidelity Investments is set to allow investors to put a Bitcoin account in their 401(k) plans, the first major retirement-plan provider to do so.
- Fidelity’s embrace of cryptocurrencies is bringing the nascent asset class into the mainstream, a move that could prompt wider acceptance amount employers.
One of the world’s largest asset managers, Fidelity Investments, is set to allow investors to put a Bitcoin account in their 401(k) plans, the first major retirement-plan provider to do so.
For non-Americans, the 401(k) is an employer-sponsored defined-contribution pension account and employee funding comes directly off their paycheck which may be matched by their employer and like provident funds or pension contributions in other countries.
There are two types of 401(k) plans, traditional and Roth 401(k), with contributions and withdrawals on the latter having no impact on income tax, whereas for traditional accounts, contributions may be deducted from taxable income, while withdrawals are added to the same.
The benefit of the Roth 401(k) is tax-free capital gains, which could become a major draw especially for investors who want to get in on Bitcoin, given its price potential.
While employees won’t immediately be able to start adding cryptocurrencies to their nest eggs right away, later this year, the 23,000 American companies that use Fidelity to administer their retirement plans will have the option to put Bitcoin in them.
Under any other market conditions, America’s biggest retirement plan provider adding Bitcoin to its mix of offerings would have acted as a huge boost on Bitcoin’s price as it is a major endorsement by a mainstream retirement plan provider.
But Fidelity’s move comes at a time when Bitcoin’s correlation with stocks is at its nadir, in part due to rising borrowing costs and the prospect of tighter monetary conditions, and the volatility in the markets is not helping an already volatile asset class.
Under Fidelity’s plan, retirement savers could add as much as 20% of their nest eggs to Bitcoin, though that threshold could be lowered by plan sponsors.
And Fidelity has no intention to stop at Bitcoin, expecting to roll out other cryptocurrencies in the future.
Fidelity’s embrace of cryptocurrencies is bringing the nascent asset class into the mainstream, a move that could prompt wider acceptance amount employers.
With over 20 million participants and some US$2.7 trillion in assets under administration, Fidelity has been growing its presence in the cryptocurrency business, having launched its own trading and custody platform in 2018 that caters to hedge funds and other professional investors.