Should You Own Bitcoin in Your 401(k) After a 34% Drop From Its Record?

Bitcoin has seen a significant decline of 34% from its peak value of $126,080, which was reached on October 6, 2025. This sharp drop raises an important question for those considering holding Bitcoin in their 401(k) plans: Is it still a viable investment option?

At present, Bitcoin is trading around $82,820. Although this figure represents a 23% increase over the last quarter, it still reflects a 24% decrease compared to the previous year. Cryptocurrency advocate Michael Saylor remarked on October 13 that he believes Bitcoin's lowest point was just under $60,000. For individuals approaching retirement, the question remains: should they retain any Bitcoin within a tax-advantaged account like a 401(k)?

The Labor Department has recently proposed a regulation that could enable 401(k) plans to include alternative assets, such as cryptocurrencies, real estate, and private equity. This proposal, published in the Federal Register on March 31, aims to protect plan fiduciaries from potential lawsuits, provided they consider six critical factors—performance, fees, liquidity, and complexity—when selecting investment options. However, the ultimate decision on which investments to include rests with each employer's plan committee. Many employers are hesitant to incorporate cryptocurrency options due to fears of possible legal repercussions.

For those seeking quicker access to Bitcoin, an Individual Retirement Account (IRA) may be a better choice. Investors can hold Bitcoin exchange-traded funds (ETFs), such as the iShares Bitcoin Trust, in a brokerage IRA much like any other stock. As of October 16, U.S. spot Bitcoin ETFs had accumulated approximately $104 billion in assets. Additionally, individuals who have left a previous job can roll over an old 401(k) into an IRA, allowing them to invest in Bitcoin without needing approval from their new employer’s investment committee.

To return to its all-time high of $126,080, Bitcoin would need to rise by about 52% from its current price of $82,820. This is particularly significant for retirees, as they are more adversely affected by losses than younger investors. For instance, if a retiree needs to liquidate assets during a downturn to fund withdrawals, what was initially just a paper loss could become a permanent loss. For a retiree with a $1 million 401(k) balance, a $50,000 investment in Bitcoin means that another 34% drop could result in a loss of $17,000, nearly 2% of their total account. If that retiree holds 20% of their portfolio in Bitcoin, the loss could escalate to $68,000 right as they begin making withdrawals. This volatility might necessitate selling other assets, such as stocks and bonds, to cover expenses, ultimately diminishing the overall retirement savings plan.

On the other hand, the current lower Bitcoin prices present a unique tax opportunity. If an investor holds a Bitcoin ETF in a traditional IRA and opts to convert it to a Roth IRA, they can pay taxes based on the decreased value. For example, converting $50,000 while in the 22% tax bracket could result in a tax bill of roughly $11,000. If Bitcoin rebounds to its record high, that investment could potentially grow to about $76,000, allowing for tax-free withdrawals in retirement.

However, it is crucial to consider how this conversion might impact Medicare premiums. Income from the conversion is counted toward modified adjusted gross income, which Medicare uses to determine premium rates based on a two-year lookback period. Under the 2026 rules, a married couple earning over $218,000 would face a monthly Medicare Part B premium of approximately $284 per person, compared to a standard rate of $203. This could add nearly $1,949 to their annual expenses before any additional Part D surcharges. Furthermore, this additional income could result in up to 85% of Social Security benefits becoming taxable, indicating that while the conversion may seem appealing at a 22% tax rate, the actual cost could be significantly higher. To mitigate these effects, it may be wise to spread conversions over several years to keep income below Medicare thresholds.

In summary, maintaining Bitcoin in a retirement portfolio can be a sound strategy, provided that the investment is kept small enough so that a further decline won’t jeopardize retirement plans. Financial experts typically recommend limiting Bitcoin exposure to 5% or less of total savings, ensuring that a 34% drop would not exceed a 2% loss. This way, even if Bitcoin's value doubles, its smaller share would only contribute an additional 5% to the overall retirement account.

Moreover, holding Bitcoin in an IRA or 401(k) is more advantageous than maintaining it in a taxable account, as selling after a price increase allows for reinvestment in bonds without incurring capital gains taxes. Investors should keep an eye on the Labor Department's finalization of regulations concerning alternative assets. If their plans begin offering cryptocurrency options, it is advisable to compare fees with a spot ETF in an IRA, as lower costs could have a more significant impact on returns than the timing of investments.