American financial services firm Fidelity will integrate Bitcoin into its 401(k) retirement offerings, giving investors the option to allocate tax-advantaged retirement savings to Bitcoin.
In 2020, Fidelity had ~$2.4T in 401(k) assets under management, good for a one-third share of the 401(k) market. Fidelity has been integrating crypto into its products since 2018, so it's no surprise that they're the first major financial firm to announce support for Bitcoin in a 401(k). Fidelity Head of Workplace Retirement Offerings and Platforms Dave Gray says Fidelity will launch with Bitcoin only then integrate more cryptos later.
Investors can allocate up to 20% of their 401(k) balance to Bitcoin, but the limit depends on their employer and the total value of their account. I struggle to imagine many 401(k) plans will allow the full 20% Bitcoin allocation. It seems like the retirement plan managers would make more fee income from assets they choose than they would make from Bitcoin holders.
Maybe that's why Fidelity is charging crypto holding fees. Fidelity will charge a fee between .75% and .9% on Bitcoin held in a 401(k). The total fee depends on the specific plan and employer. Additionally, Fidelity will charge trading fees, but the company hasn't said how they intend to extract these fees.
Holding fees, or "management" fees, are common in American retirement investments, but a fee of .9% on Bitcoin seems high. There are significant tax benefits to buying Bitcoin this way, so investors are still likely to come out ahead, though. Fidelity and its partners still extract good value.
Starting with $10k and contributing $5k/yr:
|No Fee||.75% Fee|
|Rate of return||10.00%||10.00%|
|Net rate of return||10.00%||9.25%|
|Investment value in 30 years||$996,964||$856,257|