Earlier this week, one of the 401K providers – ForUSAll Inc., announced that it has struck an agreement with Coinbase Global, a cryptocurrency exchange, to allow workers in its 401K plan to invest their contributions in bitcoin. This announcement comes on the heels of a precipitous drop in bitcoin’s value – close to 40%, since its record high in April. While the major 401K plan administrators – Fidelity and Charles Schwab do not yet allow customers to buy or sell cryptocurrency in taxable accounts or IRAs, they do allow investments in cryptocurrencies indirectly via trusts such as those from Grayscale Investments LLC.

In allowing customers to invest directly into cryptocurrencies through their 401K, ForUSAll reasons that addition of cryptocurrency investments will boost the expected returns of the portfolio without increasing overall risk. Really?

Future Wealth’s View

401K and IRA accounts are sacred cows. One can take all the risk they want in their brokerage accounts but once you start messing around with these tax sheltered accounts that are primarily intended to provide you with a safe and secure retirement, things go downhill very fast. Attempting to get greedy with money that is intended to provide you support through your retirement years is akin to taking up race car driving at age 65. The rush and the tingling sensations could be addicting but is not going to end well.

Furthermore, with annual limits on contributions into 401K and IRA accounts, it is almost impossible to make up for losses in those accounts once the money is gone. By feeding into the greed, these providers hope to attract more investments by offering cryptocurrency options but for those who are inclined and are willing to shoulder the risk, we would instead recommend taking a small position in their brokerage accounts, no more than 1-2% of their overall portfolio.

If that position balloons to be 10x, you get your kicks. If the crypto balloon pops, mum’s the word.