Ask an Advisor: Should I Include Private Equity and Credit in My 401(k)?

Ask an Advisor: Should I Include Private Equity and Credit in My 401(k)?

Private equity, credit, infrastructure, real assets and other private investments have long been inaccessible to most average investors. In fact, these alternatives have been largely the preserve of institutions and ultra-high net worth investors for decades.

But in August 2025, an executive order opened the door to allowing private investments to be more easily included in 401(k) plans, essentially expanding access for millions of individual investors.

For high-income earners who may be interested in diversifying part of their portfolio away from traditional investments, this shift in what regulators allow within retirement plans is significant. While private investments come with certain risks and general liquidity issues, they do offer some notable benefits, including inflation resistance and higher potential returns.

What is the appeal of including Alts in your retirement plan?

Alternative, or private, investments have the potential to deliver returns beyond what is possible with traditional stock market investing and reduce market-induced portfolio volatility.

For example, private credit and infrastructure funds have the ability to generate stable cash flow even when public markets are struggling. Other avenues, such as private equity and venture capital, can provide companies with exposure to growth before they are publicly traded.

For wealthy investors who like to store away some liquidity or pursue higher-return options within their retirement portfolio, private investments can serve as a new source of diversification. Just as endowments and pension funds have long used alternatives to counter market volatility, individual investors can now employ similar strategies to strengthen their own retirement portfolios.

The current state of private investment in 401(k)s

In August 2025, President Trump signed an executive order entitled “Democratizing Access to Alternative Assets for 401(k) Investors,” which directed the Department of Labor to expand fiduciary guidelines to allow plan sponsors to include private investments in defined contribution plans, including 401(k)s. [1]

Before August, private equity was already present in a small fraction, about 2.2%, of 401(k)s. However, the new rules aim to make these options more mainstream. The policy appears to recognize that as more companies remain private longer, public investors risk missing out on significant growth opportunities. [2]

Tips for Including Private Investments in Your 401(k)

As you consider taking advantage of recent regulatory changes, remember that not all private investments are created equal. While new regulations have made certain investment options more accessible, you still need to understand how these assets work within a retirement framework.

Tip #1: Understand structure and liquidity

Unlike traditional stocks or funds that can be traded daily, private investments follow a different schedule for capital commitments and distributions. Many private funds are closed-end, meaning that investors’ capital is locked up for several years while the fund’s managers deploy it into various opportunities, such as middle-market buyouts, commercial real estate or infrastructure projects, to name a few. While certain private investment opportunities can help capture value over longer cycles, they also tend to limit flexibility. If you need liquidity sooner than expected, you may need to tap other assets first.

As you approach age 59.5, liquidity issues may become increasingly important. That said, evergreen or semi-liquid funds offer investors more predictable repayment terms (such as quarterly or semi-annually), making them a potentially more attractive option for people with 401(k)s who are quickly approaching retirement. [3]

Tip #2: Evaluate transparency, costs and fiduciary oversight

Transparency has long been a sticking point for private markets, but we are likely to see some improvement as more pension plan providers incorporate alternatives into their pension offerings. Under the 2025 executive order, fiduciary standards for private investments in retirement plans are refined to ensure that plan sponsors provide appropriate disclosures and risk documentation. However, the level of transparency can vary quite a bit from one offering to another.

As with any type of investment, make sure you understand the risks, costs, performance history, expected timeline and other important factors before committing your capital. It is not unusual for private investment opportunities to have higher costs than listed investments, although as we mentioned, the potential returns can also be higher.

Tip #3: Diversification is still fundamental

Just as diversification is important in traditional markets, it is equally essential in the private sector. By concentrating your entire alternative allocation on one fund or asset class, you increase the risk on a single investment. And like traditional stocks and bonds, you may miss out on the stabilizing effects that other categories provide.

Tip #4: Integrate alternatives within your broader retirement plan

It may sound simple enough, but don’t forget to view your private investments as part of your broader financial plan. Because these assets can have unique tax characteristics, long investment periods and complex reporting requirements, you should consider them in the context of your broader investment objectives, whether long-term growth, income stability or inflation protection.

An expert financial advisor can help you determine the optimal distribution of private investments within your pension plan. The ratio, often between 10% and 20% of the total portfolio, will have to depend on your risk tolerance and time horizon. You and your advisor can also discuss how these investments will work together with your other accounts, such as your taxable investment portfolios, to ensure that diversification, liquidity, and tax efficiency remain intact across your financial picture.

No 401(k)?

If you don’t have access to an employer 401(k) or your plan options are limited, a self-directed IRA can provide significantly more flexibility. Unlike traditional IRAs that are limited to mutual funds and ETFs, self-directed IRAs allow investors to hold a wide range of alternative assets, including private equity, real estate, private credit, venture capital funds and even direct business interests.

Or, if you’re a solo business owner or 1099 commercial real estate manager, you may be eligible to open a solo 401(k). With much higher annual limits than IRAs, solo 401(k)s can hold virtually any type of asset allowed by the IRS, including private investments. You can also include a Roth component in your solo 401(k) if you want to allocate some after-tax contributions to investments with high long-term growth potential.

Do you want to integrate private investments into your retirement planning?

With recent policy changes and increasing institutional adoption, private investment opportunities continue to change the way high-income earners build long-term wealth, especially for retirement. Before making any changes to your own retirement accounts, contact your plan provider, find out what’s available and talk to a financial advisor about your options.

Sources:

1. https://www.whitehouse.gov/presidential-actions/2025/08/democratizing-access-to-alternative-assets-for-401k-investors/
2. https://www.plansponsor.com/ahead-of-executive-order-what-to-know-about-private-equity-in-401k-plans/
3. https://www.crystalfunds.com/insights/alternative-investments-for-retirement

Sean Gerlin, CFP®, CPWA®, ChFC®, CLU®, is the founder and principal of Envision Wealth Planners, a fee-based financial advisory firm based in the Orlando area. Sean specializes in helping high-income families, business owners and commercial real estate managers align their wealth with their values ​​through a comprehensive Financial Life Planning approach. Read more about them at envisionplanners.com.

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