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Investing in Bitcoin in Your 401(k)
By Hal M. Bundrick Nov Three, two thousand fourteen Four:05 PM EDT
Fresh YORK (InsideBitcoins) — Investing in bitcoin today is squarely in the field of the speculator. But could it become more than that? Some compelling research, published earlier this year in the Journal of Financial Planning, concluded that bitcoin investments diminished the risk and enhanced the spectacle of a typical portfolio of stocks and bonds. Just a 3% allocation of the digital currency was a “useful” diversification contraption.
There are possible avenues in which to buy and hold bitcoin investments in your Individual Retirement Account (IRA), but what about the most-widely held retirement plan: the 401(k)? Is it possible today – or will it be soon – to realize the tax-deferred or even tax-free advantage of investing in bitcoin in your retirement account? The brief response: Yes.
Barry Silbert, CEO of the Digital Currency Group and founder of SecondMarket and the Bitcoin Investment Trust (BIT), is seeking regulatory approval to open BIT to ordinary investors – moving beyond the wealthy “accredited” investors that are presently the only ones with such access. That approval could come before the end of the year.
Taking a position in the trust effectively buys you shares in bitcoin, based on the daily value of the cryptocurrency. A minimum investment of $25,000 is required. FINRA, the self-regulatory authority of the U.S. securities industry, is considering permitting the shares to be traded on an over-the-counter exchange, which could open the investment chance to everyday investors.
“For the average investor, the chance to make a petite investment in bitcoin is to invest in a technology movement that has a chance to switch the world the way names like Google and Ebay have,” Silbert told Benefits Pro in a latest interview.
Of course, sponsors of 401(k) retirement plans have a fiduciary duty to act in the best interests of their participants – and suggesting a volatile investment such as bitcoin could cause fairly a bit of handwringing. But Silbert’s bitcoin trust isn’t the only industry player looking to suggest investors alternative ways to hold bitcoins as an investment. Tyler and Cameron Winklevoss, the high profile technology twins of Facebook fame, and their bitcoin exchange-traded fund (ETF) could also build up regulatory approval in the coming weeks. Other bitcoin ETFs are also in the planning stage around the world.
But embedded in any registered security is an impediment to spectacle: fees. For investors looking to add bitcoin exposure to their retirement plan, it’s fairly likely those seen and unseen charges will be a necessary evil in order to place such investments in a 401(k). However, individual – and again, wealthy, accredited investors — may find it possible to build up some direct BTC exposure inwards a self-directed IRA, which permits non-traditional holdings such as timber, real estate and other assets that are not normally permitted in IRAs.
Hal M. Bundrick is a Certified Financial Planner™ and former financial advisor and senior investment specialist for Wall Street firms — and Editor-in-Chief of Inwards Bitcoins. On Twitter: @HalMBundrick
Opinions voiced do not represent the opinion of MecklerMedia and are not recommendations of whether to buy, sell or hold shares of bitcoin or other investments. Investors are advised to do their own research before making a decision. Past bitcoin price spectacle is no assure of future price appreciation.