Trump’s Executive Order on Alternative Assets in Retirement Accounts

Last week, President Trump signed an executive order aimed at making it easier to include “alternative assets,” such as real estate, in retirement accounts. But is this really a positive move?

The typical investment options in most U.S. retirement accounts are usually pretty straightforward—stocks and bonds. However, the new executive order opens the door to a range of different investment opportunities, including cryptocurrencies and real estate. Laurel Wamsley, an NPR Personal Finance Correspondent, is here to share insights. Hi, Laurel.

Wamsley: Hi, Ali.

Shapiro: Could you first clarify how the standard options in a 401(k) differ from what’s now being proposed?

Wamsley: Certainly. 401(k) plans and similar accounts are retirement options provided by employers where employees can contribute a portion of their earnings. Typically, individuals select from a limited range of investment choices, mainly composed of publicly traded stocks and bonds. The executive order is intended to establish a new category of investment options for employees, allowing for cryptocurrencies, real estate, and private equity funds. This initiative directs various federal agencies to explore this shift and signals a change to the financial sector. While these alternative investments tend to carry higher risks compared to traditional assets, they also have the potential to generate significant wealth for some.

Shapiro: The introduction of private equity into 401(k)s has certainly grabbed attention. How does this work?

Wamsley: Private equity firms invest in companies and assets, often transforming struggling businesses. Sometimes, these companies do indeed face bankruptcy. Typically, private equity investments are made by large institutions, such as universities and state pension plans, or by wealthy individuals. For everyday investors, private equity has been largely inaccessible. Lisa Kirchenbauer, from Omega Wealth Management, suggests that opening up 401(k)s to these kinds of investments could be transformative.

Kirchenbauer: This could democratize access to formerly exclusive investment opportunities. But, of course, it doesn’t guarantee that these investments will yield the same wealth as they have for others.

Wamsley: Exactly. The success of these new investment options largely hinges on the specific companies or assets chosen for inclusion, and there’s no guarantee they’ll offer the best returns.

Shapiro: Why haven’t these assets been options in 401(k)s until now?

Wamsley: While there aren’t laws explicitly prohibiting them, there are compelling reasons to exclude them—like higher fees, increased risk, complexity, and a lack of transparency associated with private equity. Administrators of 401(k) plans must maintain fiduciary responsibility under a federal law known as ERISA, which requires them to act in their employees’ best interests.

Shapiro: So, when can employees expect to see more choices in their retirement accounts?

Wamsley: It might happen, but don’t expect changes right away. New funding mechanisms will need to be developed for the retail market, and that process is underway. Yet, it’s also crucial to note that these alternative assets might not suit everyone’s 401(k). Private equity comes with high fees and long-term commitments—often a decade or more—which could pose problems if someone plans to switch jobs soon.

Kirchenbauer suggests considering allocating only 5% to 10% of a portfolio to these new assets. For many, the risks involved may outweigh the potential benefits, making traditional investments in stocks and bonds more appealing.

Shapiro: Thanks, Laurel, for shedding light on this.

Wamsley: You’re welcome.