Can Miami Survive Tech Recession and Stock Market Crash, Become Next Silicon Valley

The music is always too loud in Miami, but tech workers seem to love it anyway.

As the tech industry fanned out across the US over the past two years, a geographically liberated workforce found itself in new and unexpected places — like frivolous, beachy Miami. Where other cities have spent billions of dollars on incentives, planning, and research parks over decades to lure startups, Miami’s inchoate community was tweeted into existence in a matter of months.

Right now, the US tech sector is on tenterhooks as markets tumble, startup valuations crater, and tech layoffs are announced daily. The industry’s uncertain future raises a question: Can Miami parlay its recent success into a status as a globally competitive tech hub to someday rival Silicon Valley? Or will it turn into a cautionary tale about placing all your bets on a bubble?

The Miami miracle of migration

Ed Glaeser, an urban economist who wrote the book “Triumph of the City,” once told an interviewer that “the most successful economic development policy is to attract and retain smart people and then get out of their way.” Miami may not be the most obvious place to attract the type of people who would build a new Silicon Valley.

After all, as the venture capitalist Paul Graham wrote in 2006: “Most nerds like quieter pleasures. They like cafes instead of clubs; used bookshops instead of fashionable clothing shops; hiking instead of dancing.” Even some in Miami doubted the city could become a tech hub.

In 2013, the Knight Foundation, The Atlantic, and the urbanist Richard Florida held a conference to discuss the future of Miami’s economy. Named “Start-up City: Miami,” the gathering marked one of the city’s first attempts to brand itself as a transcontinental tech hub, but it was not well received by all the area’s leaders. Miami Beach’s mayor at the time, Phil Levine, unforgettably called the idea of a tech-driven Miami Beach “the dumbest idea in the world.” He believed that Miami Beach should play to its strengths: tourism and travel.

When Zappos’ CEO at the time, Tony Hsieh, the internet pioneer who helped revitalize downtown Las Vegas, took the stage during the conference, he asked the audience of Miamians, “How many opportunities do you have in a lifetime to help shape the future of a major city?” Nearly 10 years later, the city’s new contingent of tech disciples and policymakers are welcoming the challenge to create something in a place with no tech traditions.

“You could see the need for Miami to diversify,” Francis Suarez, Miami’s mayor since 2017, told me during an interview in March.

Suarez is one of the biggest reasons for Miami’s economic transformation. Using social-media buzz and livestreamed conversations with recognizable tech leaders over sugary Cuban espressos called cafecitos, Suarez called for investors, programmers, designers, and entrepreneurs to relocate to Miami’s shores. He has argued that the city has the ability to remake itself.

“We’re a relatively young city — 125 years old,” he said. “The modern Miami started in my lifetime.”

There’s no playbook for building a sustainable, long-term tech ecosystem using online publicity and peer pressure, but the early returns from Suarez’s constant promotion are encouraging. In the year following the start of the pandemic, the Miami-Fort Lauderdale region had the greatest inbound migration of software and IT workers of any US metro area, at 15.4% year over year, while the Bay Area fared the worst.

Miami was aided in its efforts by the snowglobe-shaking disruption of the pandemic. “Part of what made this moment possible were macro factors,” Suarez told me. Remote work empowered people to find places with a cheaper cost of living, better quality of life, lower taxes, and less stringent health protocols. Sunshine and socializing in a Sun Belt city became a temptation for many in New York City and San Francisco. And the Magic City, similar to other warm-weather cities, became a “have-it-all hub.”

“You’re starting to see this decentralization of talent in tech. I think Miami is well positioned to come out of that era as a dominant player,” Suarez told me. “Many of the people I talk to are saying, ‘We’ll build here, but we may hire from all over the country.'”

Peter Yared, a founder of the software startup InCountry, arrived in Miami from San Francisco in September 2020 after briefly considering Los Angeles. “People think that you move for taxes, but you don’t upend your life for them,” he told me. For Yared, as for many others, it was a combination of factors including governance and crime that turned him away from San Francisco and the “monoculture that had distilled” the city.

More than a flash in the pan

To be sure, Silicon Valley wasn’t successful just because it was a suburban area with nice weather. What fueled its rise as the center of the tech world were its competitive research institutions, friendly business and labor laws, access to venture capital, and web of legal, financial, and accounting firms ready to aid eager entrepreneurs. Plenty of cities have tried to follow in its footsteps — from Atlanta’s “Silicon Peach” to Salt Lake City’s “Silicon Slopes” — but have mostly ended up as promising but pale imitations.

Miami’s most distinguishing feature as a startup hub is its status as an international city — a crossroads for a variety of industries, events, and people. Its network of domestic and international flights and its proximity to Latin America make it a gateway for people and globalized markets. In 2019, more than 54% of residents of Miami-Dade County were immigrants, and immigrants held 61% of STEM jobs.

The city can capitalize on its title of the “capital of Latin America” and its existing industries — namely hospitality, aviation, and healthcare — to provide an economic base for the tech sector that could spur recombinant urban economic growth. With its density of hospitals and treatment centers, it can build up its biotechnology reputation, which the University of Miami’s life-sciences-and-technology park and incubator has ventured to do. And the robustness of the region’s tech economy may depend on expanding beyond crypto projects and into traditional industries and newer sectors such as climate technology.

It also has the advantage of being a vibrant city that can draw entrepreneurs, business celebrities, and startup CEOs from across the country to events. Back-to-back tech conferences and large-scale events like Miami Tech Week, the Bitcoin Conference, and eMerge Americas have brought in powerful people. And the city has become an alternative to New York and Las Vegas for some of the most voguish nonbusiness events including Art Basel and the Formula 1 ​​Grand Prix in early May.

Now that the idea of Miami as a tech hub has caught on, startup founders, developers, and venture capitalists are flocking to be part of it. “There’s a vanguard of interesting people all showing up at the same time,” Yared told me. “It’s what makes cities boom.”

Miami is also rapidly drawing in venture capital. In 2021, the value of venture-capital deals for Miami-based startups nearly quadrupled, reaching $4.6 billion overall, up from $1.2 billion in 2020 and right behind Austin. While the city ranks 12th in the country in terms of venture-capital funding, representing only 1.4% of the total amount raised in the US, the year-over-year growth is substantial.

SoftBank grew its Miami fund to $250 million, while Founders Fund, Atomic, and Silicon Valley Bank opened offices. As more funds relocate or expand their offices to Miami, other venture firms will be drawn into this vortex. And this convergence of capital makes Suarez confident that Miami “will be the main aggregation center of capital.” The growing white-shoe network of legal and accounting firms within the banking and financial-services sector is also poised to support the city’s growing tech sector.

Despite the recent precipitous drop in tech stocks, momentum doesn’t appear to be slowing. So far this year, startups in the Miami area have raised over $1.15 billion, according to PitchBook. Nationally, a record-breaking year in venture-capital fundraising has given way to sobering expectations of an industry pullback as public markets get hit hard and startup valuations slump.

Eventually, the macroeconomic environment may drag down Miami’s nascent tech economy, but with newly funded venture-capital firms needing to deploy capital, the fallout could be minor.

To make sure this rapid boom doesn’t result in a just-as-sudden bust, Miami will need to couple the tech cheerleading with more sustainable development. The city has to invest in nuts-and-bolts infrastructure, the kind that helps keep housing costs, homelessness, crime, and poverty low. And it must face down its most existential crisis: climate change.

The higher-education brain drain

The most glaring roadblock on Miami’s path to challenging Silicon Valley is brain drain and the lack of top-ranking applied sciences and research universities. Regional experts such as Alejandro Portes, a sociologist who has studied Miami’s economic history, have highlighted that the region’s top young people often depart for Boston, New York, or California for college. Keeping these students near home — during and after school — requires South Florida to have a top-tier engineering university.

“Higher ed is ripe for disruption. We are looking at higher-ed partnerships or at creating something completely new,” Suarez told me. He’s heading up a free, tech-oriented charter school to encourage young people toward tech.

Local universities are also aware of this need. Florida International University is constructing a $48 million facility to expand engineering programs, and it says that in the past four years it’s grown its computer-science enrollment by 60%, to about 8,000 students. Even with all this, Miami’s tech education pales in comparison to the roughly 18,000 science and engineering graduates in and near Silicon Valley in 2016 and the thousands more in software boot camps.

Research facilities are also critical for developing an innovative ecosystem. The benefits of research and development are hyperlocalized, meaning research benefits the community through local commercialization of new technologies before spreading nationally and internationally. And research has suggested that university spin-off companies are more likely to attract venture capital.

In a report by the National Science Foundation ranking colleges and universities by the number of utility patents developed through their research from 1969 to 2012, the highest South Florida institution ranked 29th, behind institutions in areas with much smaller populations. To boost that number, Miami could follow the example of New York City: In 2011, the city partnered with Cornell University and the Institute of Technology to build an engineering campus on an underutilized piece of land.

As these tech-talent pipelines form, however, companies based in Miami can draw on their proximity to Central and South American markets and labor, setting up remote teams in places like Mexico City and recruiting more diverse talent from abroad.

Can Miami fight the housing crisis and rising shorelines? 

Only a few years ago, Miami’s cost of living was just above the national average. But thanks to a precipitous jump in newcomers, Miami has become the most expensive housing market in the US, a May report from RealtyHop said. According to Redfin, the average rent in Miami increased by 34% over 2021, hitting an eye-watering $3,020.

The consumer price index for Greater Miami increased by 9.8% over the year to February; that figure was nearly 2 percentage points higher than in most parts of the country. How can Miami avoid the pitfalls of growth that accompanied the Bay Area’s rise, a phrase that local newspapers have pejoratively called the “San Francisco-ization” of Miami?

Suarez is transparent about the challenges Miami faces and the looming crisis of unaffordability. “We are not perfect and we have all of the challenges of major cities but we are at historic lows in homicides, unemployment and taxes. Much work to be done on affordability and education,” he tweeted in February. Despite the hot market, more units are being built, offering a positive, if imperfect, outlook as many residents are uprooted.

“We have in our pipeline 47,000 units in construction. That’s a 25% increase in dwelling units that we’re going to see over a two- to four-year period,” Suarez told me. For now, the housing crisis has not translated into homelessness; rates are at a 25-year low.

What’s more, with the exception of the pandemic spike, the unemployment rate, currently at 3%, has remained low in recent years, and wage growth has surged by more than in other metro areas recently — things that, taken together, may help alleviate the cost of living.

Just as pressing as housing issues, the crescive tides accompanying the climate crisis may affect the city’s growth over the next several decades. In 2017, voters approved a $400 million “Miami Forever” bond to help protect against rising sea levels and flooding.

The city in recent years has embraced advisors from the Netherlands to help it adapt. Over the next two decades, the sea level is expected to rise by 11 inches around Miami, threatening billions of dollars in real estate if the city isn’t able to adapt effectively. Undoubtedly, the region will need to invest substantially more toward mitigation efforts.

It takes time to build

For Miami and its newly minted tech hub to continue growing at the current pace, the city will need to address these imminent risks and the challenges of responding to the climate crisis and the second-order effects of growth. Greater Miami, by various metrics, consistently hovers between 10th and 12th among US metros for economic output, number of knowledge workers, and annual venture capital, which together provide a picture of Miami’s tech economy: Miami is midsized, but it’s growing fiercely.

The city has embraced a talent-focused and place-based policymaking approach to building a tech hub. And it has many of the ingredients for a hub that’s perfect for a remote-work era: a high quality of life with many social opportunities to counteract the siloing effects of working from home. But the one factor in Silicon Valley’s success that Miami still needs is time.

“We’re a 10-year overnight-success story,” Suarez told me. That is far short of the decades it took for Silicon Valley to mature. It’s clear that Miami’s star is rising, but to become an entrenched part of the tech industry, the city will need to weather economic storms like what we’re seeing today. Reading the coffee grounds from cafecitos, there is a growing chance that Miami could very well become a superstar city with an international tech hub.

Emil Skandul is a writer and founder of digital innovation firm Capitol Foundry. He is working on a book about tech hubs.

Source: Can Miami Survive Tech Recession and Stock Market Crash, Become Next Silicon Valley

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A New Idea To Reduce Wealth Inequality: Tax Capital Gains At Death At A Higher Rate Than During Life

Senate Finance Committee Chair Ron Wyden (D-OR) have proposed different ways to tax unrealized capital gains every year. Their shared goal is understandable, with trillions of dollars escaping income tax under current law. But each plan raises serious administrative and legal problems. My colleague, Rob McClelland, and I suggest a simpler, more effective approach: Tax unrealized gains of the wealthy at death at a higher rate than if assets are sold or given as gifts during life.

An unrealized gain is the increase in the value of an asset, like stock, which has not yet been sold. Taxing these gains is important because unrealized gains now account for more than half of the staggering amount of wealth of the very richest Americans, those with at least $100 million of net worth.

Current law encourages the wealthy to hold their assets until death, when those gains escape income tax permanently. This happens for two reasons. First, current law does not treat a bequest as a sale so no income tax is due at death. And, second, heirs are allowed a “stepped-up basis” where they never pay tax on any increase in the value of property during a decedent’s lifetime.

The results: Government loses a massive amount of revenue, wealth inequality is perpetuated through generations, and investors are encouraged to retain (or “lock-in”) poorly balanced, and less productive, portfolios. More than fifty years ago, two leading tax experts described the failure to tax gains of property transferred at death as “the most serious defect in our federal tax system.”

To fix this longstanding flaw, our plan would tax unrealized gains at death for the very rich (couples with more than $100 million and singles with more than $50 million) at the tax rate for ordinary income—currently 37 percent. But profits from sales or gifts of assets during life would still be taxed at 23.8 percent. Transfers to spouses would be tax exempt. And the very rich would be allowed to deduct their income taxes at death from their estate taxes.

Our proposal turns the existing incentive for appreciated assets on its head. Instead of encouraging people to hold their appreciated assets until death to avoid income taxes, our proposal encourages them to sell these assets before they die.

For example, imagine an entrepreneur who owns $100 billion of his company stock, for which he paid nothing when he founded the firm. Under our proposal, if he holds his stock until death, he’d owe $37 billion in income tax. But if he sells during life, he would owe $23.8 billion. And, if he wants to transfer his stock to his children without paying the $37 billion, he could give his stock to them during his life and pay $23.8 billion.

To determine the reach of our proposal, Rob reviewed data from the 2019 Survey of Consumer Finances, which he combined with Forbes 400 information (which is excluded from the survey). He estimated that taxpayers subject to our proposal have unrealized gains totaling about $7.5 trillion in 2022.

If these households realize $6 trillion of their $7.5 trillion of that gain during their lifetimes, and the remaining $1.5 trillion at death, our proposal would raise almost $2 trillion over time. Over the next 10 years alone, our plan could raise several hundred billion dollars, just like Biden’s and Wyden’s plan. (Our plan could raise more than theirs eventually, as our tax rate at death is higher than Biden’s and Wyden’s.)

For simplicity, we assumed the unrealized gains don’t grow over time, which likely makes our estimates conservative.

Taxing the wealthiest households on their unrealized gains at death is much easier to administer than Biden’s or Wyden’s plans to tax them annually. Our plan would rely on existing estate tax returns, and valuations, which the rich already file, while Biden’s and Wyden’s plans would require new annual filings for taxpayers during their lifetimes.

While few taxpayers would pay Biden’s or Wyden’s tax, many more would need to value all their assets annually, as taxpayers close to the line might move in and out of the regimes over time. How would the IRS determine whether all these taxpayers filed properly?

Finally, our proposal to collect taxes on transfers by gift or bequests is well -established under the US Constitution, but collecting taxes outside of transfers during their lifetimes raises unresolved legal issues.

Today, older, wealthier taxpayers often hang on to appreciated assets during their lifetimes, waiting to transfer them at death. Our plan encourages them to realize gains during life, which could lead to better balanced portfolios, broaden ownership of these assets, and generate much-needed tax revenue.

I am a Senior Fellow in the Urban-Brookings Tax Policy Center. I research, speak, and write on a range of federal income tax issues, with a focus on business

Source: A New Idea To Reduce Wealth Inequality: Tax Capital Gains At Death At A Higher Rate Than During Life

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IRS Under Fire After Destroying 30 Million Tax Documents

The Internal Revenue Service, struggling to deal with a massive backlog of paper filings, decided to “destroy an estimated 30 million paper-filed information return documents in March 2021,” the agency’s watchdog reported last week.

The IRS said in a statement Thursday that taxpayers “have not been and will not be subject to penalties resulting from this action.” It said that it processed 3.2 billion information returns in 2020 and that the destroyed documents are not tax returns but documents submitted to the IRS by third-party payors.

It added that 99% of the information returns were already processed and the remaining 1% of those documents “were destroyed due to a software limitation and to make room for new documents relevant to the pending 2021 filing season.”

The agency also said that “this situation reflects the significant issues posed by antiquated IRS technology.” The destruction of documents has sparked a backlash from tax preparers, with some reportedly concerned that the decision could hamper the agency’s ability to verify returns and trigger additional error notices.

“IRS management’s decision to destroy information return documents due to the processing backlog raised numerous questions regarding IRS’ decision making and risk assessment process,” Edward Karl, vice president of taxation at the American Institute of CPAs, said in a statement. “The IRS’ recent statement provided some of the answers, but American taxpayers deserve to know why this decision was made and how it might impact them.”

Rep. Bill Pascrell (D-NJ), chairman of the House Ways and Means Oversight Subcommittee, on Friday called for President Biden to replace IRS Commissioner Chuck Rettig, describing the document destruction as the latest black eye for the agency.

“The IRS is vital to public confidence in our nation and its Trump-appointed leader has failed,” Pascrell said in a statement. “The manner by which we are learning about the destruction of unprocessed paperwork is just the latest example of the lackadaisical attitude from Mr. Rettig.

This latest revelation adds to the public’s plummeting confidence in our unfair two-tier tax system. That confidence cannot recover if all the American people see at the IRS is incompetence and catastrophe.”

While the report doesn’t specify which information returns the agency chucked, the news has triggered angry responses from tax professionals, particularly after another difficult filing season.

“I was horrified when I read the report describing the destruction of paper-filed information returns,” said Phyllis Jo Kubey, a New York-based enrolled agent and president of the New York State Society of Enrolled Agents.

Missing information returns can cause a “mismatch” at the IRS, delaying refunds because the agency can’t verify details on a taxpayer’s returns, she explained.

While the eventual consequences of the decision are unknown, tax professionals have long complained about the stream of automated IRS notices, with limited options to reach the agency.

“If they’re not putting those into the system, there’s going to be discrepancies, which means potential notices that are sent out,” said Dan Herron, a San Luis Obispo, California-based certified financial planner and CPA with Elemental Wealth Advisors.

Although the IRS halted more than a dozen types of automated notices in February, Herron says the constant correspondence is still creating headaches for taxpayers and advisors.

“There were no negative taxpayer consequences as a result of this action,” the IRS said in a statement on Thursday. “Taxpayers or payers have not been and will not be subject to penalties resulting from this action.”

Brian Streig, a CPA with Calhoun, Thomson and Matza LLP in Austin, Texas, said the news was a “break of our trust,” pointing to the burden on the business community.

“Small businesses stress out every year in January trying to accurately prepare these informational returns and get them filed on time,” he said. “To see the IRS just destroy these is almost like the IRS admitting they don’t really care.”

By:

Source: IRS Under Fire After Destroying 30 Million Tax Documents

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Where Not To Die In 2022: The Greediest Death Tax States

Should death be taxing? Amid budget surpluses, states started slashing income taxes last year. But only two have made significant changes to their estate or inheritance taxes so far. Last year Iowa legislators decided to phase out the state’s inheritance tax by January 1, 2025. And this year Nebraska legislators made pro-taxpayer tweaks to its inheritance tax for deaths occurring on or after January 1, 2023.

Other jurisdictions have lessened the tax bite for dying in 2022—through previously scheduled changes or inflation adjustments. But some, without inflation adjustments, are still taxing estates at levels that haven’t budged for years, meaning more families are getting surprise death tax bills. In one of those states—Massachusetts—Democratic legislators are pushing for changes to spare more estates from the tax as part of a broader tax reform package this summer.

In all, 17 states and the District of Columbia levy estate and/or inheritance taxes. Maryland is the outlier that levies both. If you live in one of these states—or might retire to one—pay attention.

These taxes operate separately from the federal estate tax, which applies only to a couple thousand estates a year valued at over $12.06 million per person. (That number is set to drop roughly in half on January 1, 2026, when the Trump tax cuts that temporarily doubled the base exemption from $5 million to $10 million expire.) While few individuals need to plan around the federal estate tax, the state levies all kick in at much lower dollar levels, often making it a middle class problem.

Consider the current state estate tax in Massachusetts. The $1 million estate tax exemption hasn’t been adjusted for inflation since 2006, so it can hit the heirs of middle class folks who have seen their houses and retirement accounts appreciate.

“You can be real estate rich with a modest home, and your estate could be subject to this,” says Scott Cashman, a tax manager with Bowditch & Dewey in Worcester, Massachusetts. “It’s becoming more of an issue every year.” If the $1 million exemption amount set in 2006 had been adjusted for inflation, it would be closer to $1.5 million today.

Say a widow or widower died with a house worth $535,000, a $200,000 bank account, a $350,000 retirement account, and a $15,000 car, for a $1.1 million gross estate. Assuming $50,000 in deductions, the estate tax would be $20,500, he calculates.

(There’s no estate tax when assets are left to a spouse, but in this case the heirs are children.) If the house is worth $1 million, however, the tax would be $65,360— one third of the cash in the bank. Adding to the pain is what’s known as the cliff: Once the $1 million mark is crossed, the estate tax applies to everything over $40,000. “I don’t know if most legislators understand that,” he says.

A bill introduced by Democratic state senators would double the Massachusetts exemption amount to $2 million and only levy tax above that amount, removing the dreaded cliff. “We have such a surplus now, this is the time to do it,” says Cashman. “There’s broad-based support for reform.”

Inheritance taxes—levied in 6 states—can kick in at far lower levels, with the exemption and tax rate depending on the heir’s relationship to the deceased. In New Jersey, for example, if you leave your estate to a Class D beneficiary—including a nephew or non-civil-union partner—they’re taxed at 15% on assets up to $700,000 and 16% on assets above $700,000.

In Nebraska, lawmakers this year fell short of inheritance tax repeal but succeeded in chipping away at the state’s inheritance tax. The new law, effective Jan. 1, 2023, cuts the top tax rates (from 18% to 15%, for example) and increases the exemption amounts (from $10,000 to $25,000, for example). It also eliminates inheritance taxes for heirs under 22, and it makes unadopted step-relatives taxed at the lower rate for nearer family members and not the higher rate for unrelated heirs.

“Lawmakers wouldn’t agree to a general phase-down of the tax at this point that would apply to everyone, but they were willing to accept that if a younger person were to inherit property or cash (and we can use a lot more young residents and entrepreneurs in Nebraska) that it’s not in the state’s economic interest to take any of it away from them,” says Adam Weinberg, communications director with the Platte Institute, which is continuing its effort to repeal the inheritance tax in Nebraska.

Meanwhile, Connecticut, the least taxing of the estate tax states, is on schedule to increase its exemption to $9.1 million in 2022, and then to match the federal exemption for deaths on or after January 1, 2023. In an unusual nod designed to keep the richest taxpayers in the state, Connecticut has a $15 million cap on state estate and gift taxes (which represents the tax due on an estate of approximately $129 million).

Other states with 2022 changes: Washington, D.C. reduced its estate tax exemption amount to $4 million in 2021, but then adjusted that amount for inflation beginning this year, bringing the 2022 exemption amount to $4,254,800. Several states, which all have set their exemption amounts at different base levels, also see inflation adjustments for 2022. Maine’s is $6,010,000, while New York’s is $6,110,000. In Rhode Island, the 2022 exemption amount is $1,648,611.

I cover personal finance, with a focus on retirement planning, trusts and estates strategies, and taxwise charitable giving. I’ve written for Forbes since 1997.

Source: Where Not To Die In 2022: The Greediest Death Tax States

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What You Should Know Before Investing In Fidelity’s Bitcoin Retirement Accounts

This morning crypto advocates and the crypto curious alike woke up to the news that asset management giant Fidelity will start allowing investors to put bitcoin into their 401(k) retirement savings accounts. On its surface this looks like an easy way for individuals to get access to this emerging asset class in an advantageous way from a tax perspective. However, there are still some important considerations to take into account.

Here is what you need to know.

The service will be available later this year to participants in employee-sponsored retirement plans offered by Fidelity—but only if an employer opts to offer it. Annual gains in a 401(k) are tax deferred, which eliminates the hassles associated with crypto investing and annual tax reporting. Withdrawals from a 401(k) in retirement are either taxed as ordinary income (if you contributed to a traditional pre-tax account) or tax-free (if you put after tax dollars into a Roth account).

According to The Wall Street Journal fees on these investments will range between 0.75%-0.90%, plus trading fees which falls within the mid-range of spot market trading fees offered by most major exchanges in the U.S. such as Coinbase, Gemini, Kraken, FTX.US, and Binance.US. Additionally, for now, employees will only be able to allocate a maximum of 20% of their currently account balances and new contributions to bitcoin.

The service is going to be slowly rolled out over the course of 2022. Currently the only firm to have publicly signed on is business analytics firm MicroStrategy. Led by billionaire bitcoin bull Michael Saylor, MicroStrategy is the world’s largest corporate holder of bitcoin with a treasury topping $5 billion worth of the asset. And again, your employer will have to agree to offer the service. Some may balk at the asset’s volatility.

Back in 2013 you could purchase a single bitcoin for under $300. As of this writing, a whole bitcoin will run you approximately $40,000. This is gargantuan growth, but it has not been smooth.

There have been multiple occasions where bitcoin and other leading crypto assets have lost well north of 50% of their value (many of which happened before the industry broke into the mainstream consciousness). However, many investors likely remember bitcoin approaching $20,000 in late 2017 before losing 75% of its value in the subsequent months.

We saw another such drop during the late fall when bitcoin fell from $69,000 to the low $30,000s. Bitcoiners will tell you that the asset more than recovers each time that it gets knocked down. In fact, many consider riding these boom and bust cycles as a rite of passage. But it might not be for everyone.

While there may have been cheering throughout #cryptotwitter that Fidelity is letting clients dip their toes in bitcoin, the government may not be as happy. For starters, federal regulators have been very reticent at letting investors get easy exposure to the crypto spot markets, even bitcoin.

Famously, the Securities and Exchange Commission is yet to approve a bitcoin spot ETF (it has approved a handful of products that offer exposure to bitcoin futures contracts), often citing the market’s vulnerability to fraud and manipulation.

When it comes to retirement planning, volatility again comes into play. Bitcoin is down nearly 40% from its all-time high of just under $70,000 last November, and retirees and those soon to retire may not have the funds or time to ride out these boom and bust cycles. In fact, last month the Department of Labor issued a notice expressing several concerns with investing retirement funds in crypto.

Chief among them were the market’s extreme volatility, its emerging (cloudy) regulatory status, the inability of investors to make informed decisions, as well as more basic concerns about the security of holding crypto assets, which have become juicy targets for hackers. Labor’s concerns matter because it has a say in the regulation of employer sponsored plans.

In addition, when news came out last July that Coinbase, the largest crypto exchange in the U.S., had partnered with a retirement firm to offer such services, David John, a senior policy advisor at AARP Policy Institute and the deputy director of the retirement security project at the Brookings Institution, told Forbes: “Crypto itself is fascinating, and intriguing as it starts to develop, but it’s still in its early phases.

And it is definitely not appropriate for retirement investing.” Added John: “The fact is that for retirement investing, you want growth, and you want a limited amount of volatility. The older you get, the less you want your portfolio to gyrate up and down, because it makes it very hard to plan your retirement income.”

While Fidelity is a world unto itself when it comes to asset management and retirement savings, there are other ways to get your retirement savings access to crypto. Firms such as Kingdom Trust, iTrust Capital and BitcoinIRA let investors purchase digital assets via exchanges and hold them in individual retirement accounts.

Additionally, Coinbase partnered with ForUsAll in June to let participants in employer sponsored plans purchase dozens of different crypto assets and hold them in tax deferred programs.

Finally, if you want exposure to the industry but don’t want to directly hold digital assets, there are plenty of stocks and ETFs that track companies operating in the crypto industry that are highly correlated to the underlying assets.

Saving for retirement is a personal decision, and your strategy – from what to hold to allocation percentages must —depend on your specific circumstances. Please seek out a Registered Investment Advisor or other professional advice before making any big decisions.

I am director of research for digital assets at Forbes. I was recently the Social Media/Copy Lead at Kraken, a cryptocurrency exchange based in the United States.

Source: What You Should Know Before Investing In Fidelity’s Bitcoin Retirement Accounts

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