401(k) plans now offer cryptocurrency investment options: Learn how to maximize your retirement savings with these new choices.

• Cryptocurrency was one of the fastest-growing categories of exchange-traded funds in 2024.
• The 401(k) plan market has a small portion dedicated to crypto, but it has the potential to expand significantly by 2025.
• Cryptocurrency investments should be approached with caution due to volatility and risk, according to advisors.

While some investors are enthusiastic about the recent surge in cryptocurrency prices, investment advisors remain skeptical about their suitability in retirement savings plans.

In 2024, crypto was one of the fastest-growing categories of exchange-traded funds, with the iShares Bitcoin Trust ETF (IBIT) being the most popular and reaching over $50 billion in total assets.

The 401(k) plan market has a small portion dedicated to crypto, but it has the potential to expand significantly by 2025.

President-elect Trump has proposed establishing a strategic reserve of bitcoin for the U.S. and has appointed Paul Atkins, a cryptocurrency supporter, to head the Securities and Exchange Commission. The SEC's decision to approve spot bitcoin and ethereum exchange-traded funds in 2024 marked a significant shift for the industry.

Fiduciaries of 401(k) plans are required by law to act in the best interest of investors, taking into account the risk of loss and potential gains of investments. The Labor Department advises extreme caution before adding crypto options to a 401(k) plan's core investments.

While the Labor Department hasn't mandated fiduciaries to manage all investment options, such as those available through self-directed brokerage windows, the Government Accountability Office reports that nearly 40% of plans now offer brokerage windows in their 401(k) accounts, according to a 2023 survey by the Plan Sponsor Council of America.

Pros and cons of crypto in a 401(k) plan

There is disagreement among people about the amount of cryptocurrency to include in retirement savings or whether it is prudent to allocate any at all.

Some financial experts believe that crypto can be a suitable option for a 401(k) plan due to its independence from the stock market and its ability to operate effectively even when a fiat currency experiences devaluation.

Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C., stated that crypto should be included in a 401(k) plan because it is a non-correlated alternative asset class.

"Johnson, a member of the CNBC Financial Advisor Council, advised investors to consider their risk tolerance and time horizon when determining their target allocation. He emphasized that more volatile asset classes should be included in the portfolio to maximize returns."

An investor should allocate between 2% and 8% of their portfolio to cryptocurrencies, according to Johnson's recommendation.

Other experts point to volatility and risk as reasons to be conservative.

Amy Arnott, a chartered financial analyst and portfolio strategist with Morningstar Research Services, advised that people saving for retirement should be even more conservative when adding crypto to their 401(k) plan, as it could increase the risk of a large loss at the wrong time.

Since September 2015, bitcoin has been almost five times as volatile as U.S. stocks, and ether nearly ten times as volatile. This type of volatility can significantly increase the risk in a portfolio, even with a small investment.

401(k) contribution limits for 2025

In 2025, the maximum contribution an employee can make to a 401(k) and other employer-sponsored plans is $23,500, which is $500 more than in 2024.

Individuals aged 50 and above can contribute up to $7,500 as a "catch-up contribution," while those aged 60 to 63 can make a "supersized" catch-up contribution of up to $11,250 for the year 2025.

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