Why the government is warning against this risky retirement investment

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Fidelity Investments, one of the nation’s biggest retirement plan providers, announced it will introduce bitcoin as a 401(k) investment option for plan participants later this year. This marks the first time a major financial plan provider has included cryptocurrency in a 401(k) plan.

But in March, the Department of Labor preemptively cautioned providers against adding cryptocurrency to 401(k)s, warning that investor enthusiasm for bitcoin could overshadow legitimate concerns about volatility and risk.

If your employer decides to allow bitcoin in your 401(k), make sure you understand the risks before you start putting part of your paycheck into cryptocurrency.

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How Fidelity’s 401(k) bitcoin option will work

Later this year, Fidelity will allow its 23,000 employer clients to offer their workers bitcoin as an investment option for 401(k)s. Employees can put up to 20% of their payroll contributions toward bitcoin, and also transfer funds from other investments. Up to 20% of the entire plan can be held in a “digital assets account,” a custom plan account that contains bitcoin. It’s up to your employer whether to allow this option, and if it does it can choose to set a cap lower than 20%.

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1. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.

2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.

 

“Your employer must allow it to be an option within your 401(k). I’m guessing that many employers won’t provide bitcoin as an option in their 401(k) plans given the uncertainty around how the Department of Labor will regulate it,” says Drew Feutz, certified financial planner and co-founder of Migration Wealth Management.

Investors without previous exposure to bitcoin will be able to purchase it without having to sign up on a cryptocurrency marketplace. It will be treated like any other choice on your investment menu, and the tax benefits that apply to other 401(k) investments will also apply to bitcoin.

The Department of Labor warns against risks

Of course, there is inherent risk with any investment. But in March the Department of Labor warned plan fiduciaries to “exercise extreme care” before adding cryptocurrency to 401(k)s for several reasons.

First, the DOL says cryptocurrency investments are highly speculative and volatile, making it difficult to assess their value, a problem for long-term investment strategies. To compound this problem, plan participants are less likely to understand cryptocurrency compared to traditional investments, and may be blinded from the risks by the temptation of significant gains.

Cryptocurrencies also have a high risk of loss due to hacks, theft, and even lost passwords, says the DOL. Some market participants may not be following the proper rules and regulations, and may fall out of compliance as those rules evolve. Lastly, the agency says it will investigate plans that offer cryptocurrency investments, question plan fiduciaries sworn to act in the best financial interests of plan participants, and “take appropriate action” to protect those interests.

“Historically, bitcoin has seen huge price increases followed by rapid crashes. This could lead people to make rash, short-term decisions,” Feutz says. Because bitcoin is not an income-producing asset, its value increases and decreases are based on factors outside of the income it produces or the outlook of a business, which makes it difficult to predict, he says.

For what it’s worth, Fidelity itself acknowledges that digital assets are speculative and volatile in its own statement, and are only for investors who can live with high risk.

Should you invest your 401(k) in bitcoin?

On the upside, investing in bitcoin via your 401(k) could be a way for you to get familiar with cryptocurrency through an established financial services company like Fidelity. In addition, it has the potential for higher returns than even some higher-risk traditional securities. But even if your employer allows it (and many may be wary), make sure you understand the risks before you get started.

“People should understand that the asset is very volatile” and be prepared for large fluctuations, Feutz says. “Someone considering cryptocurrency for their 401(k) who has never invested in bitcoin … should consider dipping their toe in rather than jumping in the deep end.”

Cryptocurrency doesn’t have the decades of data behind it that other investments do. That said, it’s likely not going anywhere anytime soon, and financial advisers, plan administrators, and fiduciaries may become more comfortable helping clients invest as time goes on and the regulatory landscape clarifies.

This article originally appeared on Policygenius.com and was syndicated by MediaFeed.org.

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Life happens. A natural disaster, an emergency surgery, a roof leak — all sorts of sudden, unexpected situations could leave you scrambling for funds and needing to dig into your retirement fund. If you’ve lost your life savings or discovered you aren’t on track to have the money you’ll need for the retirement you desire, then we’ve created this post for you!

As a bonus tip, it might help to visualize what you want your retirement years to be like. Do you imagine traveling the world? Relocating to a place where it’s sunny and warm — or where you’ll be near friends and family? No matter what appeals to you, keeping your unique vision front of mind could serve as a guiding light as you develop the strategy to rebuild your retirement savings.

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In the busyness of life, it can be easy to get into the set-it-and-forget-it mode of thinking. You might not have started saving for retirement yet, or you may have created a budget that has worked okay for you in the past and you haven’t made any changes. If that sounds familiar, then you may be pleasantly surprised by the possibilities.

Could you, for example, consolidate your credit card balances into a personal loan  ? If so, how much would you save? If you took that amount and put it into your retirement account, more money could be going toward investing in your own future.

Are you paying off student loans or helping your child to do so? Again, refinancing might free up cash flow that could go into retirement savings.

What apps, subscriptions and the like could you live without — ones you might not even use anymore? In total, how much more could you invest in your own retirement each month or year? What might be the cumulative effect of all of your budget-cutting strategies?

As a related strategy, are you close to paying off a large purchase? This could include a boat, an RV, or even your home. If so, you could consider earmarking whatever you’ve been paying monthly for that large purchase to go into your retirement account. If it doesn’t seem possible to commit the entire amount each month to your retirement savings, what percentage might seem doable?

 

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If you have a 401(k) or other employer-sponsored retirement plan, you are allowed to invest up to $19,000 of your pre-tax salary annually, a cap that the IRS says may be increased in the future because of cost of living increases. Then, when you reach the age of 50, your annual contribution limit is boosted to $25,000. Increasing your retirement contributions also reduces the amount of your income that’s taxable.

If you’re contributing to an IRA, you can contribute $6,000 annually, or $7,000 if you’re 50 or older. This is true for both traditional and Roth IRAs. Note that, if you have an employer-sponsored 401(k), you can also invest in an IRA.

And, if you reach the limits of your retirement plans with tax advantages in a particular year, you could still continue to build up your reserves with other forms of investments, whether stocks, bonds, mutual funds, or something else.

In other words, you wouldn’t have to let the limits set by the IRS stop you from investing if you have funds available for that purpose. You might just need to invest another way until the next year’s retirement-investment opportunity returns.

 

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Ideally, yes, your hard work would automatically be recognized and your boss would give you a raise without you needing to ask. But, it doesn’t always work that way — and SoFi has created the ultimate guide on how to get a raise.

Highlights of the guide include:

•  Being clear about what you deserve in compensation. It might help define your value by researching what other professionals with your skills, experience, and education are receiving.

•  Gathering facts. This could include the financial information we’ve mentioned, plus your accomplishments, what others value about your work, and what you plan to contribute to the company going forward.

•  Building up your confidence. It might help to practice your pitch for a raise with trusted friends and colleagues.

•  Making an appointment. You might want to set a time to give your data-based, professionally expressed, well-timed request for a raise.

Then, you could invest any raise (or bonuses) into your retirement savings.

 

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If you were born in 1960 or beyond, then your full retirement age for Social Security benefits, according to the IRS, is 67. There are also delayed retirement credits that you can take advantage of. In this scenario, you could earn 124% of your monthly benefit if you delay retirement until the age of 70 — a delay of 36 months.

You may decide that, yes, you’re going to keep working in your current career until the age of 70. Or, you could switch to an encore career, one that brings about a change of pace for you and allows you to focus on a specific passion, one that might offer more freedom and aligns with values you hold dear.

It could involve consulting or freelancing, or otherwise using skills, contacts and experiences in a new way, possibly even telecommuting or working a more non-traditional schedule.

This might help increase Social Security benefits while working in an exciting new career. You could also use some of your earnings to invest in retirement savings.

 

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It might help to review your retirement portfolio to determine if you’re investing in the best way, with “best” defined differently for each person. Each person has their own risk tolerance, and each person’s financial situation is unique.Your portfolio review might take those factors into account.

Perhaps you also have a wealth account, an investment vehicle where you contribute after-tax funds. If so, it might make sense to review that portfolio, as well, to determine if you may be able to accelerate growth.

As you look at your portfolio, would it become even more meaningful if you focused on active and automated investing platforms that could help you as an investor without paying fees.

Learn more:

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Invest
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA  SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

 

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