Should You Add Bitcoin to Your Retirement Savings Strategy?

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January, 2022
Presented by Leisl L. Cording, CFP®
Vice President, Associate Financial Advisor

 

Cryptocurrency has grown in popularity in recent years, and the possibility of using it as a part of your retirement saving strategy is no longer a fantasy. Some retirement plan providers are offering the option to direct a portion of contributions to cryptocurrency assets.

With Bitcoin and other cryptocurrencies becoming more mainstream, should you consider this choice?

Like other alternative and speculative assets, cryptocurrency can be illiquid at times, and its current values may fluctuate from the purchase price. Cryptocurrency assets can be significantly affected by a variety of forces, including economic conditions, supply and demand forces and potential regulation.

 

 


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Bitcoin and other digital assets do come with several potential benefits, but these benefits should always be considered alongside the drawbacks. You should weigh the advantages and disadvantages to better understand Bitcoin as a retirement plan choice. 

Consideration #1: Taxes

Bitcoin is taxed like most other assets. The IRS categorizes bitcoin as property, with four additional rules:
  • If paid in bitcoin, it must be reported on a W-2 and is handled like any other income.
  • Independent service providers may be paid in bitcoin and standard employment taxes apply. 
  • Character gains and losses on bitcoin will depend on the underlying asset.
  • Payments using Bitcoin must be reported just like any other property.

Consideration #2: Opportunity For Diversification

Diversification can play a role in the health of our investments, especially for long-term investments like 401(k)s. Diversifying offers a chance to receive losses and gain, with the hope that the gains outdo the losses.

Bitcoin could be helpful as a retirement savings choice by acting as another source of diversification. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if a security or asset price declines.   

Consideration #3: Potential Volatility

One of the biggest concerns surrounding Bitcoin may be its history of volatility. It has been known to rise and fall quickly, with drops as extreme as 80 percent.2 As a retirement choice, such volatility could be unnerving. In addition, many factors impact the volatility of Bitcoin, so measuring them becomes an even greater challenge for investors. 

Consideration #4: Possible Security Issues

The Consumer Financial Protection Bureau notes that digital assets may be impacted by some security issues including:

  • Password recovery: Bitcoin accounts require a password to access funds. But with no form of recovery, if your password is lost, the funds are lost as well.
  • Susceptible to hacking: As an online asset, cryptocurrency may be susceptible to hacking attempts.
  • Lack of support: You may not receive the same level of support as other forms of investments, especially if your funds go missing.

Bitcoin and other cryptocurrencies may be an attractive selection for your retirement portfolio, but remember to weigh the pros and cons carefully. You should work with a financial advisor to determine if it fits in with your overall financial strategy.

We can help to answer your questions about Bitcoin and other cryptocurrencies, and even more important, help you to build a comprehensive strategy to Plan Well, Invest Well and Live Well. Get in touch to get started >

 

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This article is intended strictly for educational purposes only and is not a recommendation for or against cryptocurrency.

Presented by Vice President, Associate Financial Advisor, Leisl L. Cording CFP®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. 697 Pomfret Street, Pomfret Center, CT 06259, 860-928-2341. http://www.whzwealth.com.

  

 

 

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