Can You Invest In Alternative Assets with a Retirement Plan?

What Is an Alternative Asset?

Alternative assets, sometimes called alternative investments, generally refer to financial assets outside the traditional categories of stocks, bonds, and cash. Examples may include real estate, private equity, private funds, or collectibles such as certain NFTs.

Most regular retirement plans offered by large financial institutions typically do not allow direct investment in these types of assets. To access them, you would generally need a self-directed retirement account such as a self-directed IRA (SDIRA) or a Solo 401k.

📝 Note: A self-directed account provides more flexibility but also requires you to handle due diligence, documentation, and ongoing compliance yourself.

Characteristics of an Alternative Investment

Alternative assets often have unique traits compared to traditional investments:

✅ Lower Liquidity

They are generally less liquid, meaning they may be harder to sell or convert into cash quickly. For example, it’s easier and faster to sell shares of Apple than it is to sell ownership in a private company or a piece of real estate. Cryptocurrencies may be an exception, as they are often more easily traded.

✅ Different Regulatory Oversight

Many alternative assets are offered under exemptions from SEC registration, such as private placements. This typically means there is less mandated disclosure than SEC-registered offerings, although anti-fraud rules still apply.

✅ Higher Risk and Potential Return

Some alternative asset classes may involve higher risks compared to traditional investments. However, they could also provide higher potential returns than mutual funds or bonds, depending on how the investment performs.

📝 Note: Every alternative asset carries its own risk, cost, and potential return profile. It’s important to evaluate each one carefully and consider professional guidance before investing.

How to Invest in Alternative Assets With a Retirement Plan

Most retirement plans are technically permitted to hold alternative assets under IRS rules, but your plan provider determines what you’re allowed to invest in.

To invest in alternative assets, you generally need a self-directed retirement plan.

When a retirement plan is self-directed, it typically gives access to a broad range of investments except those the tax code prohibits (such as collectibles or certain life-insurance holdings for IRAs). You must also avoid prohibited transactions with disqualified persons.

Some self-directed plans provide direct account control (also called “checkbook control”) through a plan bank account or an IRA-LLC. This setup may let you write checks or send wires directly from the plan’s account, but every transaction must still comply with prohibited-transaction rules.

📝 Note: Even with self-directed accounts, you cannot transact with disqualified persons or use plan assets for personal benefit.

The two most common self-directed options are a self-directed IRA (SDIRA) or a self-directed Solo 401k.

Self-Directed IRA vs. Self-Directed Solo 401k

A self-directed IRA and a self-directed Solo 401k both expand your investment options beyond traditional assets, but they work differently:

Contribution Limits

✅ For 2025, you may contribute up to $7,000 to an IRA.

✅ If you’re age 50 or older, you may contribute $8,000 (including the $1,000 catch-up).

✅ For a Solo 401k in 2025, you could contribute up to $70,000, or $77,500 if you’re age 50 or older.

Investment Control

✅ A self-directed IRA is more limiting unless the provider offers direct account control. Without it, a custodian must handle each investment on your behalf. 

✏️ Hypothetical Example: 

If you want to buy an investment property, you would instruct your custodian to write the check and complete the transaction. You must also request payments for expenses such as utilities or property upkeep.

✅ Many self-directed IRA providers specialize in one type of asset, such as a “crypto IRA,” which may further limit your choices.

✅ A self-directed Solo 401k often allows you to act as the plan’s trustee. This means you may direct investments through the plan’s bank or brokerage account, as long as you follow prohibited-transaction rules.

✅ If the plan documents permit, you may sign on the plan’s account to acquire investment property or even open an account with a crypto exchange in the name of your Solo 401k.

📝 Note: Most major banks and brokerages do not offer self-directed plans. They typically limit investment options to stocks, bonds, mutual funds, and ETFs.

Rollover Your Funds to a Self-Directed Retirement Plan

If you have savings in an old retirement account — such as a traditional or Roth IRA, or even a 401k — you can roll those funds into a self-directed plan to gain access to alternative investments.

Key Points on Rollovers

✅ Rollovers from one retirement plan to another are generally tax- and penalty-free if executed properly.
✅ Rollovers do not count toward your annual contribution limits.
✅ There’s no cap on how much you can roll over.

✏️ Hypothetical Example:

If you have $100,000 in a traditional IRA and want to invest in private funds or real estate, you could open a self-directed IRA or Solo 401k and roll over the funds.

To qualify for a Solo 401k, you need self-employment income and no employees who must be covered by the plan. 

📝 Note: Beginning in 2025, long-term, part-time employees with at least 500 hours in two consecutive years become eligible, which could affect “solo” status.

If you meet these requirements, you may qualify for a Solo 401k and gain direct access to alternative assets.

📌 Also read: Can A W-2 Employee Contribute to a SEP IRA?

Types of Alternative Investments

There’s a wide range of alternative assets you can hold in a retirement account. Each comes with its own rules, risks, fees, and potential benefits.

Real Estate

Real estate held inside a retirement plan must be strictly for investment purposes. You cannot purchase a home to live in or rent to family members. All rental income, gains from appreciation, and sale proceeds flow directly back into your retirement account. In traditional accounts, taxes are deferred until distribution. 

In Roth accounts, withdrawals are tax-free only if they are qualified (meeting both the age 59½ and five-year rules).

Cryptocurrencies and NFTs

The IRS treats digital assets like cryptocurrencies and many NFTs as property. Normally, selling crypto for a profit creates a capital gains tax. Inside a retirement account, gains are tax-deferred in traditional plans and tax-free only if Roth distributions are qualified. All profits stay in your account and can be reinvested.

📝 Note: It’s crucial to segregate retirement account crypto transactions from your personal crypto transactions. Mixing them could create compliance issues.

Private Equity

Private equity investments include venture capital, growth capital, and acquisitions. One often-cited example is Peter Thiel reportedly buying PayPal founder shares through a Roth IRA at a very low cost. Public reports say the stake grew dramatically after PayPal’s sale. 

In a Roth IRA, qualified withdrawals are tax-free. As with all assets, tax treatment depends on meeting age and five-year rules and avoiding prohibited transactions.

Commodities

Retirement accounts can gain exposure to commodities, but there are restrictions. IRAs cannot invest in “collectibles,” and precious metals are only allowed if they meet statutory fineness and custody rules. 

Some commodity structures can also trigger unrelated business taxable income (UBTI). Commodities are often used as a hedge against inflation because they typically do not move in lockstep with public equity markets.

Other Alternative Investments

Retirement accounts can also invest in:

Prohibited Assets

The IRS does not publish an official list of all alternative assets allowed in retirement accounts. Instead, it outlines what is off-limits. For example:

📝 Note: Even if an investment seems allowed, it must still comply with prohibited transaction rules to maintain tax advantages.

Investing in Alternative Assets Through a Roth Retirement Account

Alternative investments can involve higher risks but may also offer higher potential returns. Understanding how Roth and traditional retirement accounts work is key before holding alternative assets inside them.

Traditional vs Roth Accounts

Both traditional and Roth accounts offer tax-advantaged compounding. In traditional accounts, growth is tax-deferred, and taxes apply when you take distributions. In Roth accounts, qualified withdrawals are tax-free. Within either account, trades and gains aren’t taxed annually, which lets the money keep compounding.

📝 Note: Albert Einstein famously referred to compound interest as the “eighth wonder of the world.” Retirement accounts harness that effect by letting gains reinvest without annual taxation.

How Traditional Retirement Accounts Work

✅ Contributions are made with pre-tax dollars.
✅ Each year you contribute, you receive a tax deduction.
✅ For example, if you earn $50,000 and contribute $10,000, your taxable income drops to $40,000.
✅ When you withdraw funds in retirement (after age 59½), the withdrawals are taxed as ordinary income.

How Roth Retirement Accounts Work

✅ Contributions are made with after-tax dollars.
✅ You do not receive a tax deduction for contributions.
✅ For example, if you earn $50,000 and contribute $10,000, your taxable income remains $50,000.
✅ Because contributions are after-tax, Roth withdrawals are tax-free only if they are qualified (meeting both the age 59½ and five-year requirements).

Why It Matters for Alternative Investments

Peter Thiel’s reported strategy illustrates the difference. Public reports describe him investing in alternative assets through a Roth IRA at a very low cost. His stake reportedly grew to several billion dollars. 

Because the investment was in a Roth IRA, qualified withdrawals after age 59½ would be tax-free. If he had used a traditional account, income taxes would apply to all gains at distribution.

📝 Note: Whether using a traditional or Roth account, you must still follow IRS rules on prohibited transactions to keep the tax advantages.

Things to Look Out for With Alternative Assets

Investing in alternative assets can diversify your retirement portfolio, but it also brings unique challenges. Here are key points to keep in mind:

📝 Note: Always check the specific rules, fees, and tax consequences tied to each asset before investing.

📌 Want to invest in alternative assets with a Carry IRA or Solo 401k? Here’s a simple guide to get started with each.

Wrapping Up

Alternative assets can help diversify your retirement savings but they also come with unique rules, risks, and costs. Take time to understand your plan’s limits, research the investments you’re interested in, and decide which type of account, like a self-directed IRA or Solo 401k, fits your needs.

If you’re curious about expanding your retirement portfolio, learning the basics and exploring your options first can help you move forward with more confidence.

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Disclaimer:

The Carry Learning Center is operated by The Vibes Company Inc. (“Vibes”) and contains generalized educational content about personal finance topics. While Vibes provides educational content and technology services, all investment advisory services discussed on this website are provided exclusively through its wholly-owned subsidiary, Carry Advisors LLC (“Carry Advisors”), an SEC registered investment adviser. The information contained on the Carry Learning Center should not be construed as personalized investment advice and should not be considered as a solicitation to buy or sell any security or engage in a particular investment, accounting, tax or legal strategy. Vibes is not providing tax, legal, accounting, or investment advice. You should consult with qualified tax, legal, accounting, and investment professionals regarding your specific situation.

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