US 401(k) retirement plans can now include alternative assets, including cryptocurrency, under new White House rules.

US 401(k) retirement plans can now include alternative assets, including cryptocurrency, under new White House rules.

Millions of Americans saving for retirement through 401(k) accounts will soon have the option to invest in higher-risk assets such as private equity and cryptocurrencies, following an executive order signed by President Donald Trump on Thursday. The move aims to expand investment choices and potentially reshape the $12.5 trillion retirement market [2].

The executive order directs federal agencies, including the Labor Department, to redefine what constitutes a qualified asset under 401(k) rules. This could lead to a broader array of mutual funds and investments being offered to workers, including alternative assets like private equity, cryptocurrencies, and real estate [1].

Under the new rules, employers will be able to offer these expanded investment options once federal agencies rewrite the necessary regulations. This process is expected to take several months or more to complete. However, once implemented, these changes could significantly diversify retirement portfolios and potentially increase returns for investors [1].

Private equity firms and cryptocurrency companies have long sought access to Americans' retirement assets. The move by the Trump administration is seen as a significant victory for these industries, which have been pushing for broader acceptance of their investments. The price of Bitcoin, for instance, has nearly doubled since Trump's election, and it was up 2% on Thursday to $116,542 [1].

The new order stands in contrast to the previous administration's stance. Under President Joe Biden, the Labor Department had advised against including cryptocurrencies in retirement plans due to their extreme volatility. However, the Labor Department has since rescinded this guidance, paving the way for Trump's executive order [3].

While the inclusion of alternative assets in 401(k) plans could offer investors more diversification and potentially higher returns, it also carries higher risks. Private equity assets, for example, are typically illiquid and have longer investment timelines compared to traditional stock and bond market mutual funds. Cryptocurrencies, too, are known for their volatility, with daily price swings often exceeding those seen in the stock market [1].

Major retirement plan companies like Fidelity, Vanguard, and T. Rowe Price are expected to develop appropriate funds for employers to use once the regulations are in place. However, it may take several years before these new investment options become mainstream in individual retirement plans [1].

The executive order is part of a broader effort by the Trump administration to promote digital assets and make them a regular part of the U.S. financial system. The move could also boost the influence of the crypto industry, which has been actively seeking political support and legitimacy.

References:
[1] https://www.pbs.org/newshour/politics/trump-opens-door-for-401k-retirement-plans-to-invest-in-private-equity-and-crypto
[2] https://cointelegraph.com/news/trump-crypto-401k-executive-order?utm_campaign=rss_partner_inbound&utm_medium=rss&utm_source=rss_feed
[3] https://thecoinrise.com/donald-trump-moves-to-unlock-crypto-in-401k-retirement-plans/