Crypto Retirement Plans: 401(k) vs IRA

Want to maximize the potential tax advantages of having crypto in your retirement plan, but can't decide between a 401(k) and an IRA? Here's what you need to know.

Crypto 401(k) and IRA piggy banks facing each other

Until recently, the only option for investing crypto in a retirement account was to use an IRA, which typically excluded employers from being involved at all. While IRAs are popular investment tools that are easy to set up, some investors are curious about how they differ from a 401(k), particularly when it comes to providing access to cryptocurrency.

Cryptocurrency has, until recently, not been available as part of a 401(k). However, due to the built-in features of 401(k) accounts, some may find that a 401(k) suits their needs for crypto allocations better than an IRA does, particularly sponsors. Here are some of the differences between how crypto functions in these two account types, and a breakdown of why crypto in a 401(k) brings more benefits for some investors and sponsors than in an IRA.

Different Contribution Amounts

One of the most crucial differences between a 401(k) and an IRA is the contribution limit for each. An IRA maxes out at $6,000 per year, or $7,000 for workers who are over 50. In contrast, employees can contribute up to $20,500 each year, or $27,000 for employees who are at least age 50  to a 401(k).

Though both IRAs and 401(k)s provide some tax advantages for participants, the tax advantages of a 401(k) outweigh those of an IRA.

The minimum balances required in order to invest in crypto can require a greater investment in crypto currencies. Some crypto IRAs have minimum investment balances, such as Bitcoin IRA, which has a minimum of $3,000. However, crypto in a 401(k) often faces contribution percentage limits that IRAs don’t. For 401(k) accounts, contributions are taken directly from payroll checks, and participants don’t have minimum starting balances, but they do have investment caps. Investment caps for crypto in 401(k) accounts currently range from 5-20%.

401(k)s Provide a Differentiating Benefit

A 401(k) with cryptocurrency access could even signal to in-demand employees that your company takes a forward-thinking approach to employee value. Blockchain and fintech companies might especially want their benefits packages to better reflect their industry and their values, and a 401(k) with cryptocurrency access is one way to establish this.

Tax Advantages

Though both IRAs and 401(k)s provide some tax advantages for participants, the tax advantages of a 401(k) outweigh those of an IRA. The contribution limits of the 401(k) provide greater tax benefits to both employees and employers. Ultimately, with a 401(k), both sponsors and participants have the potential to save more. A 401(k) with crypto access, like the one offered by ForUsAll, is currently the only type of retirement account where both sponsors and participants receive tax advantages on accounts that can hold crypto. A Bitcoin IRA won’t typically give tax advantages to the sponsor, and participants will have fewer benefits than they do with a 401(k). On a centralized crypto exchange, there are no tax advantages at all.

How Do I Start?

A 401(k) with crypto access is easy to begin, and even easier to maintain. At ForUsAll, we handle plan administration, investment monitoring, and legal compliance. The 401(k) offers cryptocurrency access through a self-directed window at the sponsor’s discretion, and only to participants who have passed an interactive quiz that ensures they understand the risks, liability, and fee structure of our self-directed digital asset window. Allocations are capped at 5% to encourage full portfolio diversification, and to reduce risk.

Offering a modern benefit that includes crypto access in a 401(k) could help underscore your commitment to your employees, and could bring you tax advantages that an IRA can’t. Talk to a representative at ForUsAll to get started.