401(k) private equity investing: Things to consider
Editorial staff, J.P. Morgan Wealth Management
- A recent executive order directs federal agencies to expand access to alternative assets in 401(k) plans, including private equity, real estate and digital assets.
- Investors may benefit from enhanced portfolio diversification and potential returns through these expanded options.
- Alternative investing in retirement accounts introduces new considerations around liquidity, fees and complexity that investors must carefully evaluate.
- Implementation will require regulatory guidance and may take time, but planning ahead for these changes can help optimize your retirement strategy.
Retirement investors may soon see a wide range of new options coming to their 401(k)s. On August 7, 2025, President Donald Trump signed an executive order directing federal agencies to facilitate broader access to alternative assets within 401(k) and other defined-contribution retirement plans. For investors, this policy shift represents both new opportunities and important considerations for retirement and investment planning.
Understanding the new 401(k) policy update
The executive order, titled "Democratizing Access to Alternative Assets for 401(k) Investors," establishes a policy framework aimed at expanding investment choices for over 90 million Americans participating in employer-sponsored retirement plans. The order doesn't flip a switch overnight. Instead, it directs the Department of Labor to review and revise regulations within 180 days. The goal: make it easier for 401(k) plans to offer what the order calls "alternative assets."
These include private market investments like private equity and private credit, real estate investments, digital asset funds, commodities, infrastructure projects and lifetime income strategies. Think of it as bringing institutional-level investing to retail retirement accounts.
The Department of Labor has already rescinded its December 2021 supplemental statement that discouraged fiduciaries from considering alternative assets in retirement plan investment menus. That guidance created a chilling effect on alternative investments in retirement plans. With its removal, employers may feel a little more comfortable offering these investments in retirement accounts, but investors should be thoughtful in considering whether allocations to alternatives in their retirement accounts align with their overall plan and risk exposures.
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Types of alternative assets allowed in 401(k)s following the 2025 executive order
Under the executive order, the following alternative assets would be available for investors within 401(k)s and other defined-contribution retirement plans:
Private equity
Private equity refers to direct investments in companies that are not listed on public stock exchanges. This asset class typically seeks higher returns than public equity by accessing emerging businesses in their growth stages, funding value-creating corporate mergers or implementing more hands-on company development. Private equity funds historically require multi-year commitments, often ranging from five to 10 years, and can carry higher risk than traditional stock market investments. Fund manager selection and due diligence are crucial.,
Private credit
Private credit involves lending to businesses outside traditional banking systems. Unlike private equity, it focuses on debt financing rather than ownership stakes. Because these loans are negotiated directly between lender and borrower, terms can be flexible and tailored, often with robust covenants designed to mitigate risk. These investments typically offer less liquidity than public debt markets but may offer higher yields and provide additional diversification for long-term portfolios.,
Real estate investments
This covers direct property ownership, real estate investment trusts that aren't publicly traded and debt backed by real estate. Private real estate has historically provided inflation protection and income generation that many retirement portfolios lack.
Digital assets
The order specifically mentions "actively managed investment vehicles" investing in digital assets. This refers to professionally managed cryptocurrency funds, not direct bitcoin purchases in your 401(k).
Infrastructure and commodities
Infrastructure investments fund essential services like bridges, utilities, water systems and data centers. Meanwhile, commodities include physical goods like oil, gold and agricultural products. Both offer potential inflation protection and diversification.
What is the executive order’s impact on retirement saving
Until now, traditional retirement planning has largely focused on asset allocation between stocks, bonds and cash within 401(k) plans. This expanded access introduces a fourth category that operates differently from public markets. Alternative investments typically have longer investment horizons, different liquidity profiles and distinct risk-return characteristics compared to traditional retirement assets.
Alternative investments can enhance portfolio diversification because they often move differently from public stock and bond markets. When traditional markets experience volatility, alternatives may provide stability or even opposite returns, potentially reducing overall portfolio risk.
However, alternative investments also introduce considerations that don't exist with traditional retirement assets. Private assets like real estate or private equity carry illiquidity risk, requiring a longer investment timeline and limiting investors’ ability to sell. This differs significantly from the daily liquidity that 401(k) participants might expect from their retirement accounts. This can also make it more difficult to track account performance and may complicate portfolio rebalancing decisions. Some alternative assets, like cryptocurrency, can be more volatile and open to fraud, scams, theft and loss due to limited regulatory oversight. The specialized nature of alternative investments requires more due diligence and research before investing.
Fee structures in alternative investments typically exceed those of traditional retirement plan options. While index funds in 401(k) plans often charge less than 0.5% annually, private market investment funds may involve management fees of 1%–2% plus performance-based compensation. These higher costs require correspondingly higher returns to provide a net benefit to investors.
Complexity also increases with alternative investments. Evaluating private equity managers, real estate strategies or infrastructure projects requires different analytical approaches than selecting mutual funds. This complexity may necessitate additional advisory support or education for retirement plan participants.
Pros and cons of alternative investing in 401(k)s
The upside:
- More diversification: Access to investments with lower correlation to traditional markets offers an opportunity to diversify your portfolio beyond stocks, bonds and cash.
- Higher return potential: Historical performance suggests alternatives may improve long-term portfolio returns. However, it’s important to note that past performance does not guarantee future success.
- Tax-deferred growth: Alternative investments that normally trigger taxes in taxable brokerage accounts may grow tax-free in retirement plans, potentially increasing after-tax returns from these kinds of investments.
- Institutional-level access: Individual investors may gain access to strategies, portfolio managers or investment assets previously reserved for large institutions.
The downside:
- Liquidity lockup: Your money might be tied up for years, preventing portfolio rebalancing or emergency withdrawals (though making withdrawals from a 401(k) for non-qualified expenses before reaching age 59½ could trigger a 10% penalty).
- Higher fees: Alternative investments typically involve higher management costs. It’s important to weigh the expected returns against the increased fee structure to make sure the investment is financially sound.
- Complexity: These investments require sophisticated due diligence and ongoing monitoring, which is something novice investors may not have the knowledge or experience to do.
- Valuation opacity: Less frequent pricing makes portfolio tracking more difficult.
Considerations for investors weighing alternative investments in their 401(k)s
Alternative investments aren't for everyone. They work best for investors with long time horizons and comfort with complexity. If you need your 401(k) money within five to 10 years, alternatives might not make sense, given the typical investment periods for private investments. As such, this strategy may be better suited for investors with larger portfolios and substantial capital to spread among different asset types.
The complexity of alternative investments requires thorough evaluation. Unlike mutual fund selection, which can rely on standardized metrics like expense ratios and historical performance, alternatives require analysis of investment strategies, manager experience and operational considerations. This evaluation process demands significant time and expertise.
Given the complexity and long-term nature of alternative investments, working with a qualified financial advisor may become increasingly important. Advisors can help evaluate whether alternatives align with your overall retirement strategy.
The bottom line
This executive order creates a framework for expanding investment choices within 401(k) plans, but implementation will require time for regulatory guidance and for employers to start adopting alternative options in their plans. For investors with appropriate risk tolerance and long-term investment horizons, these expanded options may provide meaningful ways to enhance their portfolios.
Success with alternative investments in retirement accounts depends on thoughtful implementation that addresses liquidity, cost and complexity considerations. Consider working with a J.P. Morgan advisor to evaluate how these potential changes might fit within your broader wealth management objectives and ensure any alternative allocation aligns with your overall financial goals and risk tolerance.
Frequently asked questions about alternative investments in 401(k)s
Alternative investments include private equity, private credit, real estate, commodities, digital assets and infrastructure investments. These differ from traditional stocks, bonds and cash typically found in retirement accounts.
Under the executive order, 401(k) plans may offer private market investments, real estate, digital asset vehicles, commodities, infrastructure financing and lifetime income strategies. Implementation depends on regulatory guidance and individual plan sponsor decisions.
Current restrictions include collectibles, life insurance and certain self-dealing transactions. The executive order aims to expand access to previously restricted alternative assets while maintaining fiduciary oversight and participant protection requirements.
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Editorial staff, J.P. Morgan Wealth Management
