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As leaders in cryptocurrency payroll & invoicing services, we at Bitwage are always striving to innovate and push the industry forward. For our customers in the US, we have always likened the ability to get paid in Bitcoin similar to having a percentage of your wage be deferred into a 401(k). About a year ago, we thought about whether it would be possible to trade Bitcoin inside of a tax-incentivized 401(k) retirement account. We found out that due to IRS official guidance on the tax treatment of Bitcoin in 2014 as property, there have been many companies already offering Bitcoin IRAs, but no one has created a Bitcoin 401(k) Plan.
After 10 months of testing the product with Bitwage as the first customer, we are happy to announce the launch our company sponsored Bitcoin 401k. What this means is that companies can offer employees the ability to invest traditional/pre-tax and roth/post-tax 401k dollars into Bitcoin. For those that do not know, a traditional 401k allows pre-tax dollar investments with deferrals on income taxes until withdrawal and a roth 401k allows post-tax dollar investments with no tax obligations on capital gains for qualified withdrawals.
This is made possible through a 4 way strategic collaboration between Bitwage, Leading Retirement Solutions, Kingdom Trust and Gemini. Leading Retirement Solutions provides the administration and recording keeping for the 401(k) program to ensure Department of Labor and IRS compliance, Kingdom Trust provides a secure and regulated custody solution, Gemini provides a secure and compliant exchange solution and Bitwage acts as a concierge for the company and employees to navigate between all four companies.
So how does it work? Bitwage will initially limit the number of clients that can sign up. As such, the first thing to do is reach out to firstname.lastname@example.org or apply at https://www.bitwage.com/bitcoin401k to inquire about setting up a Bitcoin 401(k) Plan. Bitwage will help the company create a 401(k) Plan with Leading Retirement Solutions and employee custody accounts with Kingdom Trust. Once these accounts are created, your 401(k) Plan is ready to go and can be funded on your next pay period and with rollovers/transfer from old retirement accounts, including IRAs, 401k, 403b, pension plans, and more!
All funds will be converted on Gemini automatically for each pay period. Employees will be able to choose to buy and sell between USD and Bitcoin as they want. Additionally, Leading Retirement Solutions gives companies access to over 20,000 different assets, including traditional investments like mutual funds and ETFs, as well as non-traditional investments, including private and public stock, joint ventures, real estate, notes and more. This means that employees will have all the traditional investment options available to them and will be able to freely switch between Bitcoin investments and traditional investments.
Why would someone want to invest in Bitcoin over time instead of 1 lump sum? Taking a look at our bitcoin dollar cost average calculator, you can see that if you started getting a percentage of your paycheck in Bitcoin at the height of the 2017 bitcoin bubble, on May 19, 2020, you would have over a 30% ROI as of May 22, 2020.
Why should companies care today about the launch of the Bitcoin 401(k) Plan? The short answer is the Payroll Protection Program. Many companies affected by the coronavirus have recently received funds from the SBA PPP loan program. Businesses and entrepreneurs understand that 75% of those funds must be payroll expenses in order to receive 100% loan forgiveness. A problem that many of these companies are facing is that paying out 75% of the funds during the 8 weeks following the PPP loan deposit has many issues, such as delays in rehiring furloughed employees.
We are working with clients who want to use PPP proceeds to make contributions to a 401(k) Plan. It turns out that retirement benefits are included in the expenses that can be counted towards the 75% payroll expenses and they are not included in the $100,000 yearly salary cap per employee. This gives companies an opportunity to provide matching or profit sharing contributions to employee 401k accounts in order to help close the gap to receive full loan forgiveness. Together with the PPP program, the Bitwage Bitcoin 401(k) Plan allows employers to get more out of their PPP loans, while providing their employees new and innovative investment options.
This is just the beginning for the Bitcoin 401(k) Plan. Our vision includes integrating a trading engine directly inside of the 401(k) Plan so institutional as well as retail investors have access to the same exchange-grade trading tools inside of tax-incentivized retirement accounts. Future development also includes access to different kinds of digital assets as the crypto token asset class continues to grow in popularity.