President Trump signed an executive order on August 7, 2025, directing federal regulators to make it easier for 401(k) plans to offer private equity, private credit, real estate, digital assets and other alternative investments. The order does not change any plan overnight, but it starts a regulatory process that could reshape the menu inside the accounts where many high earners hold most of their tax-deferred savings.

What changed

The order defines alternative assets broadly: private market equity and debt, direct and indirect interests in real estate and real estate debt, actively managed digital asset vehicles, commodities, infrastructure financing projects, and lifetime income strategies such as longevity risk-sharing pools.

The Department of Labor has 180 days to reexamine its guidance on fiduciary duties under the Employee Retirement Income Security Act when plans offer asset allocation funds that include alternatives. The order specifically points the department toward reconsidering its December 21, 2021 supplemental statement, which had cautioned smaller plan fiduciaries about private equity in defined contribution plans. Labor is also asked to clarify how fiduciaries should weigh higher fees against potential long-term returns and diversification, and to consider rules or safe harbors that reduce litigation risk.

The Securities and Exchange Commission is directed to consider changes to accredited investor and qualified purchaser definitions to help participants in defined contribution plans gain access, and the Treasury Department is to coordinate. The administration framed the order as extending to more than 90 million workers in employer-sponsored plans the kinds of investments already available to wealthy individuals and public pensions.

Who is affected

Plan sponsors, not individual savers, decide what goes on a 401(k) menu. As Sidley Austin notes, fiduciaries keep full authority over whether to add alternatives, and the promised guidance is still pending. Groom Law Group points out that litigation over plan investments has been a major brake, although a recent Ninth Circuit ruling in a case involving Intel affirmed dismissal of claims challenging private equity in a plan, stressing that prudence is judged by process rather than outcome.

For affluent participants, the most likely first exposure would come through target-date or other professionally managed allocation funds that include a slice of private assets, rather than stand-alone private equity options.

The after-tax math

The tax logic of holding alternatives inside a 401(k) differs sharply from holding them in a taxable account. In a brokerage account, a private fund typically produces an annual partnership K-1, with income that may arrive late, cross multiple states and be taxed each year even when no cash is distributed. Inside a 401(k), those items generally do not appear on the participant's return; growth is deferred until withdrawal, or tax-free for qualified Roth distributions.

Example: a high earner has $1 million in a 401(k) and a target-date fund adds a 10% allocation to private markets, or $100,000. If that sleeve earns more than public markets, the extra return compounds without annual tax drag. If fees are higher and returns are not, the cost also compounds, with no capital loss deduction available inside the plan. The same $100,000 held in a taxable account would expose the investor to K-1 filing complexity and possibly state filings, but losses could offset other gains.

Crypto follows a similar pattern. Trading inside a plan triggers no taxable event, while in a taxable account each sale can realize a gain or loss.

Moves to discuss with your advisor

  • Asset location. Households that already own private funds or crypto in taxable accounts may want to review which holdings belong where once plan options exist.
  • Fee and liquidity terms. Private assets are harder to value and sell; how a plan handles daily pricing and withdrawals is worth understanding before any allocation.
  • Concentration. Executives with large deferred compensation or equity awards often weigh how much illiquid exposure they already carry.

What to watch

The key dates are the Labor Department's response within 180 days and any SEC proposal on investor definitions. Whether Congress addresses ERISA litigation risk, and whether large plan sponsors actually move, will determine how quickly alternatives show up in the 401(k) lineups of most workers.

Sources

  1. First reported Democratizing Access to Alternative Assets for 401(k) Investors — The White House
  2. Executive Order Directs Regulators to Expand Access to Alternative Assets in 401(k) Plans — Groom Law Group
  3. Alternative Assets - the Next 401(k) Plan Investment? — Sidley Austin

After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.