The Trump administration has rolled back Biden-era guidance that discouraged 401(k) plans from including cryptocurrency in their investment lineups. This change opens the door for retirement investors to invest in digital assets—like Bitcoin and Ethereum—through their 401(k)s.
Previously, plan fiduciaries were advised to exercise "extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu."
In other words, the Biden administration's past advice discouraged 401(k) plan sponsors from offering crypto investment options, according to Kevin Walsh, a principal at Groom Law Group.
"I think it [the new guidance] increases the likelihood that the plan sponsors allow participants to access crypto or digital assets," said Walsh. "The Trump administration has announced a policy of asset class neutrality."
Key Takeaways
- By rolling back the 2022 guidance, the Trump administration has made it easier for 401(k) plan sponsors to add crypto as long as they still meet their fiduciary duty.
- Rollout will likely be gradual, with crypto most likely appearing first in self-directed brokerage windows rather than core investment menus.
- Experts recommend limiting crypto allocations in retirement accounts due to high volatility.
What Changes Can Retirement Investors Expect to See?
While the Trump administration's new guidance makes it easier for plan sponsors to offer crypto options to investors, plan sponsors are still required to meet certain fiduciary responsibilities. To act as a fiduciary, plan sponsors have a legal obligation to act in the best interest of their participants.
"I would expect that it would be a gradual path to adoption. The 401(k) industry tends to be fairly conservative because there's a pretty constant threat of litigation," said Walsh.
Although Walsh thinks it could be a while before retirement investors notice changes in their 401(k)s, he thinks some investors could be allowed to invest in crypto through the main 401(k) investment lineup or via a brokerage window in the future.
"Many plans, especially larger ones, have brokerage windows where a participant can go in and invest in individual stocks, ETFs, or other strategies that you typically don't get in a standard investment lineup," said Michael Espinosa, CFP and President of TrueNorth Retire. "I definitely see it [crypto] being available in the self-directed brokerage windows first."
Should You Invest In Crypto Through 401(k)?
It's been a big year for cryptocurrency (Bitcoin hit a record high in May) due to the Trump administration's embrace of digital assets. Espinosa urges that investors exercise caution before allocating retirement funds towards crypto.
"For me, [there's too] much at stake when putting a significant amount in speculative assets for retirement, "said Espinosa. "If you have an appropriate savings rate and you're averaging a 6% to 10% average rate of return over 30 or 40 years, [there's] no need to add extra layers of risk."
David Rosenstrock, a CFP and founder of Wharton Wealth Planning, suggests that investors limit their investments in crypto to 1% to 2% of their overall portfolio.
"One of the most important questions you should ask yourself is whether Bitcoin fits into your investment strategy and risk tolerance," wrote Rosenstrock in an email to Investopedia. "If you're considering buying it just because it has risen 18% year-to-date, you may just be chasing returns and speculating rather than investing."
While you may need diamond hands when investing in crypto, there may be perks of investing via retirement accounts, as they offer special tax advantages, notes Rosenstrock.
For example, traditional 401(k)s are tax-deferred, so your upfront contributions are tax-deductible and you won't have to pay taxes on your earnings until you withdraw money in retirement. In contrast, if you invest in crypto through a taxable brokerage account, you'll have to pay capital gains tax when you sell.
The Bottom Line
The rollback of Biden-era guidance could lead to more plan sponsors providing crypto investment options. However, since sponsors are still required to act as fiduciaries, there may not be immediate widespread adoption of crypto in 401(k)s.
Experts suggest investors could see crypto in their primary investment menu or a self-directed brokerage window. If your plan offers crypto, consider keeping your allocation small and ensuring it aligns with your overall retirement strategy.
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