What is the new law for 401k in 2025? — What it means for crypto 401k

Quick answer: crypto 401k and what changed by 2025

The short answer is: SECURE 2.0 updated many 401(k) administrative rules through 2024 and 2026, but it did not create a special permission for employer plans to offer crypto as an investment option; plan sponsors still face the same prudence and operational questions when crypto is raised as an option SECURE 2.0 summary at the IRS.

For sponsors and participants, the practical effect is that adding crypto remains a decision that requires careful fiduciary review, vendor checks, and updated plan documents rather than a change driven by a single statutory green light SECURE 2.0 Act text (see our crypto category Finance Police crypto).

Short summary for participants: if your employer mentions a crypto option, ask how the plan will custody assets, value them daily, and report tax treatment for any distributions; the IRS classifies virtual currency as property and that affects tax handling IRS Notice 2014-21.

Short summary for employers and plan sponsors: follow the plan amendment and fiduciary process, perform enhanced vendor due diligence, and document the rationale and safeguards before adding any new investment menu item, since Department of Labor guidance continues to advise caution about crypto choices DOL guidance on cryptocurrencies and benefit plans.

What the SECURE 2.0 Act changed for 401(k) plans

SECURE 2.0 introduced a number of administrative and tax updates that affect how plans operate and how sponsors handle changes to investment menus IRS summary of SECURE 2.0.

Key provisions phased in through 2024-2026 include new catch-up contribution rules that affect Roth treatment for higher-income catch-ups, expanded automatic enrollment and saver features, and adjustments to plan amendment and administrative timelines; these changes do not specifically reference cryptocurrency but change the backdrop for any menu modification SECURE 2.0 Act text.

Why these administrative updates matter when sponsors consider new investment options: plan changes now interact with tightened rules for Roth catch-ups, automatic features, and amendment windows, so committees need to time and document menu changes with an eye to the SECURE 2.0 transition rules and any related tax reporting obligations SECURE 2.0 guidance at the IRS.

Practical checklist-style items to keep in mind when SECURE 2.0 affects a menu change:

• Confirm whether the plan document permits the new option and whether a formal amendment is required;
• Account for any Roth catch-up mechanics that may affect participant tax deferral choices;
• Review automatic enrollment and auto-portability settings to ensure the new option integrates with default investment mappings;
• Plan the communication timeline and updates to participant disclosure materials in line with amended reporting and statement requirements.

Remember that SECURE 2.0 altered administrative expectations but did not create a statutory rule that either authorizes or forbids crypto exposure in 401(k) plans; the legal framework for fiduciary prudence and tax treatment still applies SECURE 2.0 Act text.

What regulators say about adding crypto to retirement plans

Should my plan offer crypto options?

The Department of Labor has told fiduciaries to exercise “extreme care” before adding cryptocurrency options, a stance that emphasizes prudence, documentation, and attention to custody and valuation issues DOL guidance on cryptocurrencies and benefit plans (see DOL PDF guidance DOL PDF).

In plain terms, the DOL advice means plan committees should treat crypto like a complex, new asset class for retirement accounts: verify that the plan has authority to add it, confirm the chosen vendor has appropriate custody and recordkeeping processes, and document the fiduciary analysis that led to the decision DOL guidance on cryptocurrencies and benefit plans.

Recordkeepers and employers have reacted with caution. Market reporting shows many large recordkeepers and plan sponsors remain reluctant to add crypto menus because of custody, valuation, daily pricing, and integration challenges Reuters coverage of employer and recordkeeper caution (see related coverage on acceptance trends Finance Police).

That practical caution reflects both operational limits and the continuing weight of fiduciary duties under ERISA: sponsors worry about whether reliable qualified custody exists, how to handle participant statements, and how to value holdings for plan reporting and benefits calculations DOL guidance on cryptocurrencies and benefit plans.

Tax and reporting rules for crypto in 401(k) plans

The IRS treats virtual currency as property, not currency, which means gains and losses are taxable events in taxable accounts and that retirement-related distributions involving crypto must follow the existing tax rules that apply to property transactions IRS Notice 2014-21 (see IRS modification of Notice 2014-21 n-23-34.pdf).

For retirement plans this classification means in-kind distributions of crypto would raise familiar tax and reporting issues: plans need to determine fair market value for withholding and reporting, and participants may face tax consequences on distributions similar to other property distributions, subject to the plan’s distribution rules and general tax law IRS Notice 2014-21.

SECURE 2.0 introduced tax-related changes such as catch-up Roth mechanics and other administrative tweaks, but those adjustments do not change the underlying IRS position that virtual currency is property, so the same documentation and tax reporting steps apply when crypto is involved in a retirement context SECURE 2.0 summary at the IRS.

Practically, plan administrators need clear processes for valuation frequency, how to report fair market value on participant statements, and how to handle withholding for taxable distributions that involve crypto; these are operational tasks that mirror the IRS property treatment and must be coordinated with tax counsel IRS Notice 2014-21.

How employers and plan sponsors evaluate crypto 401k options

Plan committees should follow a structured checklist when crypto is proposed as a menu option to ensure compliance with fiduciary duties and operational readiness Employer guidance on adding cryptocurrency to retirement plans.

Checklist for plan committees:

1. Confirm plan amendment authority and whether an official amendment is required;
2. Document the fiduciary decision-making process, including meeting minutes and the factors considered;
3. Perform enhanced vendor due diligence focused on custody, insurance, and segregation of assets;
4. Assess valuation and liquidity processes to ensure accurate daily pricing and participant statements;
5. Test recordkeeping and payroll integration so contributions, loans, and distributions work correctly;
6. Update participant disclosures and education materials to explain risks, tax treatment, and liquidity limits.

Vendor and custody due diligence should verify that the chosen custodian meets qualified custody expectations, provides daily valuation feeds compatible with the recordkeeper, and has experience handling retirement plan flows rather than only retail crypto trading activity Employer guidance on adding cryptocurrency to retirement plans (see legal perspective MWE insight).

Because many recordkeepers remain cautious, sponsors often find that even after a thorough process they may not have a vendor willing to integrate crypto into the existing platform, so verifying vendor readiness early can prevent wasted committee time Reuters coverage of employer and recordkeeper caution.

Common mistakes and fiduciary pitfalls to avoid

Failing to amend the plan document or to confirm plan authority is a common error; without a clear document basis, adding a crypto option can create exposure under ERISA for plan fiduciaries DOL guidance on fiduciary prudence.

Insufficient vendor diligence is another frequent mistake: committees sometimes rely on thin product pitches without verifying custody insurance, segregation of assets, or the custodian’s experience handling retirement account mechanics Employer guidance on adding cryptocurrency to retirement plans.

Poor valuation procedures and weak participant communications can lead to incorrect statements, misapplied withholding, and participant confusion about liquidity. Clear valuation policies and example participant statements help reduce that risk DOL guidance on cryptocurrencies and benefit plans.

To prevent fiduciary exposure, keep detailed written records of the analysis, alternative options considered, and the reasons for the committee’s decision, and involve independent counsel where the facts are uncertain Employer guidance on adding cryptocurrency to retirement plans.

Practical scenarios and next steps for participants and employers

Questions participants should ask their plan administrator include: Is crypto available in the plan? Who holds custody? How is daily valuation performed? How will distributions be reported for tax purposes? What are liquidity limits? Asking these helps participants understand the practical implications before allocating money to crypto Reuters coverage of employer and recordkeeper caution (see recent market coverage Finance Police market analysis).

Next steps for employers considering crypto options:

1. Run a formal fiduciary process and document each step;
2. Confirm plan amendment requirements and timing;
3. Test custody and valuation workflows with potential vendors;
4. Update participant communications and ensure tax counsel reviews distribution mechanics;
5. Start with a pilot or limited offering if appropriate, and review outcomes periodically.

Highlight uncertainty: regulators could update guidance and recordkeeper offerings can change, so verification with your plan administrator and counsel is essential before assuming crypto exposure is available or appropriate for a retirement plan DOL guidance on cryptocurrencies and benefit plans.

For participants who already have access to a crypto option in a 401(k), keep in mind that the IRS property classification means tax and reporting can be more complex than for traditional mutual funds, so consider talking to a tax advisor if you plan a distribution or rollover that involves crypto IRS Notice 2014-21.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.