The tax advantages of crypto in a 401(k) can be eye opening

A retirement investment platform for small businesses has launched the Alt401(k) — enabling mainstream investors to include cryptocurrencies in their portfolios.
ForUsAll has entered into a partnership with Coinbase Institutional to provide this service — and through this 401(k), employees can transfer up to 5% of their balances into a secured account where they can buy cryptocurrencies directly.
Overall, nearly 40 different cryptocurrencies are supported, and employees get portfolio monitoring tools and the education required to make them feel comfortable with this asset class.
According to ForUsAll, over 60% of professional investors now say crypto has a role to play in their portfolios — and academic research also suggests that holding up to 5% of crypto in a diversified portfolio can increase expected growth without materially increasing risk.
In a recent report, the company’s CEO Jeff Schulte described the 401(k) as one of the best (and most counter-intuitive) places to invest in digital currencies. The fact it’s counter-intuitive mainly lies in how complicated it has been to add crypto to one of these portfolios… until now.
Stressing that ForUsAll is designed to facilitate responsible financial planning, rather than offer high levels of risk for those saving for their retirement, Schulte added:
“Now, on the subject of crypto, I’m definitely NOT talking about ‘going all-in’
like those reality TV poker shows. It may be appropriate to hold between 0 and 5% as part of a well diversified portfolio.”
Why 401(k)?
The reason why a 401(k) is so beneficial for those who intend to seek a small amount of exposure to cryptocurrency lies in how 401(k)s enable investors to use after-tax money (Roth contributions) to buy, sell, hold and withdraw cryptocurrencies without paying any tax on the gains that are accrued.
Setting out how things work, Schulte examined a $5,000 initial investment that would have been made in March 2020. One year later, that sum would have been worth $67,315. Investing in a 401(k) would mean that balance was untouched — but in a traditional retail setting, U.S. consumers would have had to pay taxes of $21,810 at sale, leaving them with a remaining balance of just $45,505.
Speaking to Cointelegraph, ForUsAll said: “The financial world has changed but the 401(k) has not kept up. We wanted to help average Americans have the same access as institutional and professional investors.”
“Once we began looking carefully at the risk/return trade-offs, it became clearer why so many professional investors were incorporating it into their portfolio, so we asked ourselves, how can we make this available to the little guy? How do we make this work in a 401(k)?”
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A first step
ForUsAll says that it is the first in the industry to introduce digital assets in the 401(k) — and that it firmly believes the merging of these worlds means that more Americans will have access to this alternative investment.
The company adds that this is only a first step, and plans are in place to open doors to a range of other alternative investments that have, until now, been largely only available for institutional investors.
Reports have suggested that the likes of Harvard, Brown and Yale have all allocated part of their institutional portfolios to digital currencies.
This is likely on the basis of studies that suggest that, when included in a diversified portfolio, digital currencies offer greater growth potential without a material increase in risk.
Given how retirement portfolios may need to sustain investors for 20 years or more in their retirement, increasing growth potential without assuming greater levels of risk can only be a good thing.
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