 A photo illustration representing the virtual cryptocurrency bitcoin. | Cryptocurrency, an unstable form of virtual money, is the hot new investment craze. But should employers offer bitcoin and its brethren as an option in workplace retirement plans? ForUsAll, a provider of 401(k) retirement plans, thinks so. It has partnered with Coinbase Institutional, a cryptocurrency platform, to enable employers to offer cryptocurrency in their plans. "For too long, too many Americans haven't had the same access to alternative investments that wealthy and professional investors have had," Jeff Schulte, CEO of ForUsAll, said in a statement. Under the ForUsAll offering, employees could elect to transfer up to 5 percent of their retirement balances into a secure account that would allow them to buy, hold and sell more than 50 cryptocurrencies. The company said it will monitor employee allocations and alert them when their overall cryptocurrency allocation exceeds the 5 percent threshold. "Professional investors have been shifting more of their investments to alternatives," the company said. And right there, that's the point that shouldn't be lost to any company considering facilitating this option for their workers. Cryptocurrency investing is best left to professional investors, warn many experts and regulators. Based on my experience with amateur investors, I wholeheartedly agree. "At the risk of setting off the cryptocurrency enthusiasts, I think this is a terrible idea," said Christine Benz, director of personal finance for Morningstar. Benz sits on the 401(k) committee at Morningstar. She said that the company hasn't discussed adding cryptocurrency and that she wouldn't recommend it at this point. "We're not in a rush to add new asset types to our plan," she said. "We want to make sure that new additions have sufficient history and they're actually adding something that we're currently lacking. We also like for the options in our plan to be highly rated by our analyst team, and we don't currently have any cryptocurrencies or related products under coverage." Here are four reasons companies shouldn't offer cryptocurrency in their 401(k) plans, according to retirement plan experts I interviewed. There's no reasonable expectation of profit over time. Although past performance doesn't guarantee future results, stocks and bonds historically offer realistic growth and cash-flow expectations, said Tim Utecht, chief investment officer for Florida-based Life Planning Partners. "Crypto fails in that regard," Utecht said. "Generally, the only potential future cash flow for cryptocurrencies comes from reselling at a higher price, which relies on the 'greater fool' theory, or finding someone foolish enough to pay more than you did. That makes it a speculative asset and not an investment." Currently, cryptocurrencies lack the proper valuation tools and concepts available to traditional stock market investments, said Daniel Demian, a financial-advice expert at the personal finance app Albert. "For example, a diligent investor can look at a company's stock through various lenses, its financial metrics, technical indicators and analyst research reports," Demian said. "The same data is not currently available for cryptocurrencies beyond coin supply, demand and price patterns." Many people don't understand the technology. "Very few people can even explain what a cryptocurrency is or why it should have any value whatsoever," Utecht said. "That doesn't make for a good investment for a retirement nest egg." Bitcoin, the grandfather of digital currency, is basically lines of computer code stored on a computer or held by a third party in a virtual wallet. The value of this cryptocurrency and others like it — such as ethereum — can rise or fall substantially and quickly. Enthusiasts of cryptocurrency technology believe it will one day revolutionize the way people transact business online. They argue that virtual currencies could give people living in areas without financial institutions or stable currency a safer way to do business. Yet, many investors are just chasing the returns with little to no understanding of how the technology works. Cryptocurrency is extremely volatile. The price fluctuations of bitcoin and other cryptocurrencies have been brutal of late. On Tuesday, bitcoin fell temporarily below $30,000. It had reached a high of nearly $65,000 in April. Other digital currencies have seen recent sell-offs, too. The cryptocurrency based on a meme — dogecoin — fell below 20 cents. It had reached a high of 74 cents in May, according to CoinMarketCap. "Cryptocurrency investors got hammered Tuesday," The Washington Post's Hamza Shaban reported, "with losses wiping out more than $100 billion in market value overnight." "We know that choice overload can be a problem with 401(k) investors," Benz said. "If workers have too many choices and not a lot of financial background, they can get overwhelmed and make suboptimal decisions. So that argues against flooding 401(k) menus with choices, period, never mind that cryptocurrency is a volatile and untested asset." Benz said Morningstar data suggests that the more volatile the asset class, the less likely investors are to time their purchases and sales well. Investors frequently buy high and sell low, Benz said. "If the goal of a 401(k) is to help workers invest their money so that it will grow for their retirements, it makes sense to limit the option to invest in hyper-volatile assets and steer them toward those options where investor outcomes tend to be relatively better," she said. Nonprofessional investors shouldn't speculate. Utecht said companies have to be very careful about opening employees up to speculative assets in workplace plans. Employees investing for retirement shouldn't be putting a lot of money into this type of holding, because the risks are tremendous, he said. "While it's possible for some people to make money by speculating in crypto, just as some have made money in comic books or Beanie Babies, these are not good long-term investments for retirement," Utecht said. The bottom line: Many experts say workplace retirement plans are no place for cryptocurrency. Or as Utecht says: "It's a gamble. And people shouldn't be gambling with retirement money." Reader Question of the Week If you have a personal finance or retirement question, send it to colorofmoney@washpost.com. In the subject line put "Question of the Week." Please note that questions may be edited for clarity. Q: I did not work in 2016. I lived off my pension, GI Bill stipend, and savings. I contributed the max ($5,500 at the time) to my Roth IRA in 2016. Did I over-contribute? If so, is there something I should do to protect myself from a penalty? A: I reached out to IRS spokesman Eric Smith to answer this question. "Not good news here, I'm afraid," Smith said. "There are 'penalties,' actually excise taxes, for contributing too much. Normally, it's 6 percent, but it can get pretty complicated if it remains in the account for several years. Though contributions to a Roth can be withdrawn without incurring regular tax, earnings also need to be withdrawn and become taxable." For example, if you contributed $1,000 more than you were allowed, you'd owe $60 each year until you correct the mistake, as explained by Vanguard in a post (Excess Contribution: Did you over contribute to your IRA?) You may be subject to the 6 percent penalty each year until the excess is corrected. Smith also said taxable withdrawals are normally subject to the 10 percent tax on early distributions unless the person is at least age 59½. Smith pointed out that you must have earned income — such as wages, tips, self-employment income — to contribute to a Roth IRA. Any taxable alimony and separate maintenance payments you receive under a decree of divorce or separate maintenance count as earned income. Here's what isn't compensation, according to the IRS. — Earnings and profits from property, such as rental income, interest income, and dividend income. — Pension or annuity income. — Deferred compensation received (compensation payments postponed from a past year). — Income from a partnership for which you don't provide services that are a material-income-producing factor. — Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs. According to Vanguard, here are your options if you discover you've contributed too much after you've filed your tax return: - Remove the excess within six months and file an amended return by Oct. 15. If eligible, you can also remove the excess plus your earnings by this date.
- Remove the excess once discovered, even after Oct. 15. You'll need to reduce next year's contributions by the excess amount. For example, if your limit is $6,000 and you exceed it by $1,500 in the current year, you can offset the excess by limiting your contributions to $4,500 the following year, according to Vanguard.
For more information read IRS Publication 590-A and Publication 590-B, as well as Form 5329 and its instructions. Unless you're using tax software, it's probably best to seek help from a tax pro, Smith said. Here are some articles that further explain what happens and what you can do in this situation. What happens if I go over my IRA contribution limit? What to Do if You Contribute Too Much to Your Roth IRA How Do I Withdraw Excess IRA Contributions? In Retirement News Part of planning for retirement and then living on the money you've saved or invested for retirement is keeping up with the issues that you need to know. In this section, I feature blogs, news stories, new research, surveys, and government policy changes that could affect your retirement. If you see a news story or issue you think would help folks, let me know and I'll check it out and share it with newsletter subscribers. This week, I was intrigued by an essay on helping a parent in retirement. "Each night when we are on the phone, my dad talks about retirement obsessively," Tina Vasquez wrote in a perspective piece for The Lily, which is published by The Post. "There is a lot to sort out — paperwork to sign, debts to pay off, budgets to create — and of his three children, I am the one who will help him make sense of it. At 70, he still works as a janitor. He is understandably tired, but as his excitement grows at the thought of a life without work, my anxiety rises because I am his retirement plan." Vasquez goes on to write about her father: "Some days he talks about returning to Mexico. Others, my dad is staunch in his desire to continue living alone. More than a few times he's mentioned moving in with me. Interestingly, my two older brothers do not make an appearance in these conversations. While the exact plan is murky, what's clear is that the shape his retirement takes is completely out of my hands, though I will be the person tasked with making it a reality." For more, read: I am my father's retirement plan. It's an honor that terrifies me. I'm sure this essay will resonate with a lot of you. So, tell me if it does. Send your comments to colorofmoney@washpost.com Retirement Rants and Raves What are your thoughts about saving for retirement? If you're retired, how is it going? What advice would you have for others about retirement? This is your space to rant or rave about anything related to retirement. Send your comments to colorofmoney@washpost.com. Please include your name, city, and state. In the subject line put "Retirement Rants and Raves." Responses may be edited for clarity. Josefina Delage of Miami shared her thoughts about retiring at 62 from a job that she hated and that was affecting her mental health. She ran the numbers and figured out she could retire sooner than she had planned. "I would have three pensions and a very good income after 65," Delage wrote. "I had zero debts, which is very important. I saved most of my money in IRAs and a Roth IRA. I retired from the state of Florida with a small pension and some health benefits that I paid every month. Waited until I was 65 to apply for my pension benefit from Citibank after working 26 years employed at a good salary, and at 66 years old I applied to receive Social Security." If you're on the fence about when to retire, Delage says: "I would say it was the best decision I ever made to retire early. My advice for retirement is to pay off your debts, save the most you can, and invest wisely. If you can't do it yourself as I did, get a trusted financial adviser." David Calder of Pleasant Hill, Calif., wrote, "My journey to retirement at 61 (I'm 65 now) was quite bumpy, but with a lot of luck it is turning out well. "I saved aggressively through my well-paid career at a telecom company (WorldCom), but neglected to diversify and lost most of it (millions) in the bankruptcy as it was in company stock and all the options I'd accumulated evaporated. I had started a diversification project (10 percent per year) but was only two years into it when the bankruptcy occurred. Luckily, I had paid off my house, but only because it was my starter house well below my means at the time (1,000 sq ft in a working-class neighborhood). I also did not lose my job (many did). Even scored a retention bonus in the bankruptcy." Three inheritances also helped, Calder, wrote. But then, the pandemic hit. "As I did in the Great Recession, I took my income and some emergency funds and bought more stocks in March of 2020, thinking that the pandemic would resolve and I'd get a good return after a few years," he said. "Luckily the market turnaround was much faster than I'd ever hope and the value of my house has gone up considerably. Since I have no kids, I do plan to spend down most of my estate. I'm holding off taking Social Security till I'm 70 to maximize that income and in my optimistic expectation to live to 95. All in all, it has been much more a bumpy ride than it should have been." Here are some additional columns that may interest you: Just because the world is opening back up doesn't mean your wallet should Stock market sell-off shouldn't change your retirement strategy Inflation is up. The stock market is down. Here's why you shouldn't panic. tskagb | 
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