Guide
Private markets in retirement plans
Long-duration assets and long-duration money are a natural pair — which is why most private-market capital from individuals arrives through a retirement account. Which account, though, decides what you can hold, who signs, and what tax you may still owe.
Why the pairing makes sense
A private fund may take ten years to return capital. Retirement money is, by design, money you are not spending for years. Pairing an illiquid asset with patient capital is the most defensible version of the private-markets argument for an individual — considerably more defensible than the same asset bought with money that has a claim on it next spring.
The caution is the mirror image. A retirement account has its own deadlines — required distributions, contribution limits, a beneficiary who inherits whatever is in there — and an asset that cannot be sold does not care about any of them. The rest of this page is about matching the asset to the right chassis.
Which chassis can hold what
Four routes, four different answers
- Self-directed IRA — the widest menu. A custodian holds the asset; you direct every transaction. Contribution limits are low, so most private-market capital arrives by rollover or transfer. See Self-Directed IRA.
- Solo 401(k) — for a business with no non-spouse employees. Higher contribution ceilings, the ability to borrow from the plan, and, critically, an exception that can neutralise UDFI on real-property debt. Compare in Solo 401(k) or self-directed IRA.
- SEP or SIMPLE IRA — employer-funded, and holds alternatives on the same basis as any IRA. See SEP & SIMPLE IRA.
- An employer’s 401(k) plan — you hold what the plan’s investment menu offers. Participants generally cannot direct the plan into a specific private deal.
The employer-plan question, stated carefully
Whether and how participant-directed workplace plans should offer private-market exposure is an active policy question, and the regulatory posture toward alternatives in defined-contribution plans has moved more than once in recent years. Anything specific we published here would date quickly, so we will not: check the current position with the plan’s fiduciary and with counsel as of the date you are reading. What has not changed is the structural point — a plan participant relies on the plan fiduciary’s selection, whereas a self-directed account holder relies on their own. Those are different jobs with different protections.
Getting capital from a plan to a self-directed account
- After separation — a former employer’s plan can generally be rolled to an IRA directly. See rollovers and transfers.
- While still employed — an in-service distribution depends entirely on the plan document; many permit it after a stated age, many do not.
- A prior plan you have lost track of — see auto-rollovers and finding lost accounts.
- Prefer a direct trustee-to-trustee transfer. Indirect rollovers introduce a 60-day clock and withholding you must replace from other funds.
The tax that follows leverage
The most expensive misunderstanding in this area is that a tax-advantaged account can never owe tax. It can. Where an account’s income is financed by debt — a leveraged fund, a mortgaged property, a leveraged infrastructure vehicle — the debt-financed share may be subject to unrelated business income tax, reported on a K-1 and filed on Form 990-T by the custodian, and paid from the account. A Solo 401(k) has a statutory exception that can eliminate this for acquisition indebtedness on real property; an IRA does not. That single difference is often the whole reason to choose one chassis over the other. Full treatment in UBIT and UDFI.
What the custodian does, and does not, do
As a directed, non-discretionary custodian, Investor Services holds the asset, keeps the records, processes the transactions you direct, and reports to the IRS. We do not evaluate, recommend, or approve any investment, and we are not a fiduciary, adviser, or broker-dealer. The sponsor selection and the diligence are yours — see how to vet a sponsor and the ERISA & Fiduciary-Status Statement.
Five constraints to plan around before you subscribe
- Capital calls. A commitment is a future obligation. Uncalled capital must be available in the account, because you cannot fund a call personally without a prohibited transaction.
- Annual valuation. Form 5498 requires a value every year, so the sponsor must supply one. See fair market value.
- Required distributions. An illiquid account still owes an RMD in cash. See RMDs on illiquid accounts.
- Disqualified persons. Your own business, your family’s deals, and entities you control are off limits. Run the checker.
- Beneficiaries. Whoever inherits inherits the illiquidity. See beneficiaries and the illiquid account.
A worked example
You leave an employer with $400,000 in a 401(k) and roll it directly to a self-directed IRA. You commit $100,000 to a private-credit fund, keep $60,000 in cash for the remaining calls and fees, and leave the balance in liquid holdings so future RMDs can be paid without selling the fund interest. The fund uses leverage, so you confirm the UBIT position in writing before subscribing and budget for the 990-T. Every document is titled to the IRA; every distribution returns to it.
Where to find offerings
We custody what you choose and we do not sell investments. Our marketplace directory lists providers for reference, including InvestNow for private-company and secondary access; you are never required to use any firm listed there. Availability on any directory is not an endorsement.
Authorities
Educational only. This page is general information, not individualized investment, legal, or tax advice. Rules depend on your account type, transaction, tax year, and circumstances — consult a qualified professional.