Alternative Assets in 401(k)s

Alternative Assets in 401(k)s: Should You Wait, or Roll an Old 401(k) Into a Self-Directed IRA?

Direct answer: A 2026 Department of Labor proposal could make alternative assets more common in employer-sponsored 401(k) plans, but it does not give every employee the immediate right to select individual alternative investments. People with an eligible former-employer 401(k) may already be able to roll those funds into a Self-Directed IRA and choose from a wider range of allowable investments.

Alternative assets are receiving increased attention from retirement investors, asset managers and federal regulators.

On March 30, 2026, the U.S. Department of Labor announced a proposed rule addressing how retirement-plan fiduciaries may evaluate investment options that include alternative assets. The proposal could encourage more employers to consider professionally managed funds that incorporate private equity, private credit, real estate and other alternative investments.

However, the proposal does not mean that every employee can immediately use a current 401(k) to purchase a specific rental property, make a private loan or invest directly in a privately held company.

That distinction matters.

An employer-sponsored 401(k) and a Self-Directed IRA can both provide retirement benefits, but they differ significantly in investment selection, control, administrative structure and applicable rules.

This article explains what the proposed rule may change, what it does not change and what investors should consider before rolling an old 401(k) into a Self-Directed IRA.

What did the Department of Labor propose in 2026?

The Department of Labor proposed a regulation concerning the duties of retirement-plan fiduciaries when selecting investment alternatives for participant-directed plans such as 401(k)s.

The proposal would clarify—and provide a potential safe harbor for—the process plan fiduciaries use when considering designated investment alternatives, including asset-allocation funds that contain alternative assets.

The proposal focuses on the fiduciary decision-making process. Among other considerations, plan fiduciaries may need to evaluate:

• The qualifications and experience of an investment manager
• Investment fees and expenses
• Liquidity restrictions
• Valuation practices
• Investment performance
• Risk and return characteristics
• The complexity of the investment
• Whether participants receive adequate information

The Department of Labor described the proposal as potentially expanding investment opportunities for more than 90 million retirement-plan participants. However, it remains a proposed regulation, not a requirement that every employer add alternative investments to its plan.

Does the proposal let employees choose individual alternative investments?

No. The proposal does not give every 401(k) participant unrestricted authority to select individual alternative assets.

Employers and plan fiduciaries would still determine which investment options appear in a company’s retirement plan.

When alternative assets are included in a 401(k), participants may receive exposure through a professionally managed vehicle, such as:

• A target-date fund
• A balanced asset-allocation fund
• A collective investment trust
• Another diversified investment option

For example, a target-date fund might allocate a portion of its holdings to private equity or private credit. That is different from allowing an employee to select and purchase a particular private company, promissory note or real estate investment.

The proposed rule specifically addresses designated investment alternatives, including asset-allocation funds that incorporate alternative assets. It does not convert an ordinary employer plan into an individually controlled Self-Directed IRA.

What alternative assets could appear in a 401(k)?

Depending on the plan and the final form of any regulation, professionally managed 401(k) investment options could potentially include exposure to:

• Private equity
• Private credit
• Real estate
• Infrastructure
• Commodities
• Digital assets
• Other investments outside traditional publicly traded stocks and bonds

The exact choices would depend on the employer, the plan document, the plan’s fiduciaries and the financial institutions managing its investment menu.

Even if alternative assets become more common in workplace retirement plans, employees should not assume that every category—or every individual investment opportunity—will become available in their particular 401(k).

What is the difference between 401(k) alternative investments and a Self-Directed IRA?

The primary difference is who controls the available investment menu.

In a typical employer-sponsored 401(k), the employer and its plan fiduciaries select a limited menu of investment options. A participant then chooses among the available funds.

With a Self-Directed IRA, the account owner identifies the investment, conducts the necessary due diligence and directs the IRA administrator and custodian to process an allowable investment.

Employer-sponsored 401(k)	Self-Directed IRA
Employer and plan fiduciaries select the investment menu	Account owner selects allowable investments
Alternative assets may be contained within a managed fund	Individual alternative investments may be held directly
Investment options vary by employer plan	Options depend on the administrator, custodian and applicable rules
ERISA protections may apply	IRA protections vary under federal and state law
A plan loan may be available if the plan permits it	An IRA owner cannot borrow from the IRA
Current-employer funds may not be distributable	Eligible rollover funds may be moved into the IRA
Plan fiduciaries evaluate investment options	Account owner is responsible for investment due diligence

A Self-Directed IRA can potentially hold assets such as real estate, private-company interests, private lending investments and certain precious metals. The account must still comply with applicable tax rules, prohibited-transaction restrictions and the administrator’s investment-processing requirements.

Can you roll an old 401(k) into a Self-Directed IRA?

An eligible distribution from a former employer’s 401(k) can generally be rolled into an IRA, including an IRA that permits self-directed investments.

The investor should first confirm rollover eligibility with the former employer’s plan administrator. The plan administrator can explain:

• Whether the funds are eligible for distribution
• Whether the account contains pretax, Roth or after-tax funds
• Which forms are required
• Whether the distribution can be sent directly to the receiving IRA
• Whether any special plan provisions apply

A rollover generally preserves the tax-deferred status of eligible retirement funds when it is completed correctly. The rollover itself does not necessarily create an immediate taxable distribution.

However, moving pretax 401(k) funds into a Roth IRA would generally be treated differently and may create taxable income. Investors considering that approach should consult a qualified tax professional.

Can you roll over a current employer’s 401(k)?

Not always.

Many employees cannot move money out of a current employer’s 401(k) while they are still working for that employer. Some plans permit an in-service distribution after a specified age or under other limited circumstances, but plans are not required to offer this option.

The availability of an in-service distribution depends on the plan document.

An employee who wants to move current-employer funds should ask the plan administrator:

“Does this plan permit an in-service distribution or rollover while I am still employed?”

Do not assume that reaching age 59½ automatically requires the plan to permit a rollover. The plan’s written provisions control whether an in-service distribution is available.

Why is a direct rollover usually preferable?

A direct rollover generally provides the cleanest way to move an eligible 401(k) distribution into an IRA.

In a direct rollover, the distribution is sent directly to the receiving IRA—or issued as a check payable to the receiving custodian for the benefit of the account owner.

When a taxable employer-plan distribution is paid directly to the participant, the plan generally must withhold 20% for federal income taxes. The participant would then normally have 60 days to deposit the full eligible amount into another retirement account, including replacing the withheld portion with money from another source to complete a full rollover.

Mandatory 20% withholding generally does not apply when the eligible distribution is sent directly to the receiving retirement plan or IRA.

Simplified example

Assume Elena has $100,000 in an eligible former-employer 401(k).

Direct rollover:
The full $100,000 is sent to her receiving IRA custodian. The distribution is generally not subject to the mandatory 20% withholding that applies when an eligible employer-plan distribution is paid to the participant.

Distribution paid to Elena:
The plan may withhold $20,000 and send Elena $80,000. To roll over the full $100,000, Elena would generally need to deposit the $80,000 she received and replace the $20,000 withheld using other funds within the applicable 60-day period.

This is one reason investors should clearly request a direct rollover, rather than a distribution payable personally to the investor.

What can a Self-Directed IRA invest in?

A Self-Directed IRA may permit investments beyond the conventional assets normally available through a brokerage account.

Depending on the administrator and custodian, allowable investments may include:

• Residential or commercial real estate
• Private lending and promissory notes
• Private-equity investments
• Interests in limited liability companies
• Private real estate funds
• Tax liens and tax deeds
• Certain precious metals
• Other privately offered investments

The term “self-directed” refers to the account owner’s ability to select the investment. It does not mean that the account is exempt from retirement-account rules.

The IRA must own the investment. The account owner does not personally own an IRA asset simply because the owner selected it.

How does an old 401(k) become a Self-Directed IRA investment?

The process generally involves six steps.

1. Open the appropriate Self-Directed IRA

The investor opens a Traditional, Roth or other eligible IRA based on the type of funds being rolled over and the investor’s circumstances.

Pretax 401(k) funds are commonly rolled into a Traditional IRA. Designated Roth 401(k) funds generally need to be handled separately from pretax funds.

2. Request a direct rollover

The investor contacts the former employer’s plan administrator and requests that eligible funds be sent directly to the receiving IRA.

3. Wait for the funds to arrive

The receiving administrator and custodian post the rollover funds to the Self-Directed IRA.

4. Select and evaluate an investment

The account owner identifies the investment and completes independent due diligence.

A Self-Directed IRA administrator generally does not recommend, endorse or guarantee an investment.

5. Complete documents using the IRA’s legal vesting

The investment documents should identify the IRA—not the account owner personally—as the purchaser or investor.

One common source of delays occurs when an investor submits documents showing the individual’s personal name rather than the complete IRA vesting. Confirm the correct vesting before executing subscription, purchase or loan documents.

6. Submit the investment request

The account owner submits the required direction-of-investment form and supporting documents. After the administrative and custodial requirements are completed, the funds are sent from the IRA to the investment.

Future income and proceeds associated with the investment must return to the IRA.

What mistakes should investors avoid during a 401(k) rollover?

Several avoidable errors can delay or disrupt a rollover.

Asking for a taxable withdrawal instead of a direct rollover

Use the term direct rollover when communicating with the plan administrator. A withdrawal payable personally to the participant can trigger withholding and create a 60-day deadline.

Combining pretax and Roth funds without instructions

A 401(k) may contain pretax contributions, designated Roth contributions and after-tax contributions. Ask for a breakdown before opening the receiving account or requesting the rollover.

Signing investment documents personally

The Self-Directed IRA must be correctly identified as the purchaser or investor. Using personal ownership language can create documentation problems and may misstate who owns the asset.

Committing to an investment before the IRA is ready

Confirm the rollover timeline, documentation requirements and available cash before agreeing to a closing or funding deadline.

Assuming the administrator evaluates investment quality

A Self-Directed IRA administrator processes the account and investment documents but generally does not assess whether an investment is safe, profitable or appropriate for the investor.

Using personal funds for IRA expenses

Expenses associated with an IRA-owned asset should generally be paid from the IRA. Investors should not assume they can pay expenses personally and reimburse themselves later.

What prohibited-transaction rules apply?

Self-Directed IRAs are subject to prohibited-transaction rules involving the account owner and other disqualified persons.

Disqualified persons generally include:

• The IRA owner
• The IRA owner’s spouse
• The IRA owner’s parents and grandparents
• The IRA owner’s children and grandchildren
• Spouses of the IRA owner’s children and grandchildren
• Certain fiduciaries
• Certain entities owned or controlled by disqualified persons

An IRA should not be used to provide an improper current benefit to the account owner or another disqualified person.

For example, an IRA owner generally should not:

• Live in or vacation at an IRA-owned property
• Rent IRA-owned property to a child
• Sell a personally owned asset to the IRA
• Borrow money from the IRA
• Personally guarantee a loan made to the IRA
• Take compensation for personally managing an IRA-owned investment
• Use IRA money to pay a personal obligation

Prohibited transactions can produce serious tax consequences. Investors should consult a qualified tax or legal professional before proceeding when related parties or personal benefits may be involved.

What are the four main choices for an old 401(k)?

A former employee commonly has four broad choices.

1. Leave the funds in the former employer’s plan

This may preserve access to the plan’s investment options, institutional pricing or other plan-specific benefits.

2. Roll the funds into a new employer’s plan

This may simplify account management if the new plan accepts incoming rollovers. Employer plans are not required to accept rollover contributions.

3. Roll the funds into an IRA or Self-Directed IRA

This may provide a broader range of investment choices and greater control, depending on the financial institution and account structure.

4. Take a distribution

A taxable distribution may create ordinary income tax and, depending on the participant’s age and circumstances, an additional 10% tax on early distributions.

These choices are not financially identical. Before moving the funds, compare investment choices, expenses, services, creditor protections, distribution rules and tax consequences.

What advantages might be lost by rolling a 401(k) into an IRA?

Greater investment flexibility does not automatically make a rollover the best choice for every person.

An employer-sponsored plan may provide benefits that an IRA does not provide in the same way.

The age-55 separation-from-service exception

A person who separates from employment during or after the calendar year in which the person reaches age 55 may qualify for an exception to the 10% additional tax on certain distributions from that employer’s qualified plan.

That specific separation-from-service exception does not apply in the same manner to distributions from an IRA.

Plan loans

Some 401(k) plans permit participants to borrow from their accounts. IRAs do not permit loans to the IRA owner.

Creditor protection

Employer-sponsored plans and IRAs can receive different forms of creditor protection. The extent of IRA protection may also depend on state law and the origin of the funds.

Employer stock considerations

Participants holding appreciated employer securities may need to evaluate special tax rules before completing a rollover.

Institutional investment options

A 401(k) may provide access to low-cost institutional funds, stable-value options or other investments not available in an IRA.

These differences should be reviewed before a rollover is initiated.

Should you wait for alternative assets to appear in your 401(k)?

Waiting may make sense when a person is satisfied with the existing plan, values its specific protections or expects the employer to add an appropriate investment option.

Waiting may not accomplish the investor’s goal when:

• The investor wants to select a particular alternative investment
• The 401(k) belongs to a former employer
• The available plan menu does not support the investor’s strategy
• The investor wants direct control over investment selection
• The investor understands the additional responsibilities of self-direction

The 2026 Department of Labor proposal could expand alternative-asset exposure within professionally managed retirement-plan investments. It does not eliminate the structural difference between choosing a fund from an employer’s menu and directing an IRA to purchase a specific allowable asset.

The better question is not simply, “Which account offers more investments?”

The better question is:

“Which account structure best fits my investment objective, need for liquidity, tax circumstances, desired level of control and ability to perform due diligence?”

Questions to ask before rolling over an old 401(k)

Before requesting a rollover, consider asking:

1. Is the distribution currently eligible for rollover?
2. Does the account contain pretax, Roth or after-tax funds?
3. What investment do I intend to hold?
4. Is that investment permitted by the receiving administrator and custodian?
5. How liquid is the investment?
6. Will the IRA retain enough cash to pay future expenses and fees?
7. Could the investment generate unrelated business taxable income?
8. Does the investment involve a disqualified person?
9. Am I giving up a useful 401(k) feature?
10. Have I independently evaluated the investment sponsor, risks, fees and exit provisions?

A rollover is an account-structure decision. The investment itself requires a separate due-diligence process.

Frequently asked questions

Are alternative assets now available in every 401(k)?

No. The 2026 Department of Labor action is a proposed regulation concerning how plan fiduciaries may evaluate designated investment alternatives, including funds containing alternative assets. Each employer and plan fiduciary still determines the options offered by its plan.

Can I use my 401(k) to buy a rental property?

A conventional 401(k) generally limits participants to investments selected for the plan. A participant usually cannot direct an ordinary employer 401(k) to purchase an individually selected rental property. An eligible former-employer 401(k) may potentially be rolled into a Self-Directed IRA that permits direct real estate investments.

Does rolling over a 401(k) create a tax bill?

A properly completed rollover of eligible pretax funds into a Traditional IRA generally does not create current taxable income. A Roth conversion, taxable distribution or improperly completed rollover may create different tax consequences.

How long does a 401(k) rollover take?

Timing depends on the former employer’s plan administrator, required forms, delivery method and receiving institution. Investors should begin early when they are working toward an investment deadline.

Can I roll over only part of an old 401(k)?

Some plans permit partial distributions or partial rollovers. The participant must confirm the available options with the plan administrator.

Can I roll a Roth 401(k) into a Self-Directed Roth IRA?

Eligible designated Roth 401(k) funds can generally be rolled into a Roth IRA. Pretax and designated Roth amounts should be identified and handled according to their respective tax character.

Can I personally use property owned by my Self-Directed IRA?

No. Personal use of IRA-owned property by the account owner or another disqualified person can constitute a prohibited transaction.

Does uDirect recommend investments?

No. uDirect IRA Services provides Self-Directed IRA administration and education. uDirect does not sell, recommend, endorse or perform due diligence on investments.

The bottom line

Alternative assets may become more visible in employer-sponsored retirement plans, but the 2026 Department of Labor proposal does not give every employee immediate control over individual alternative investments.

A professionally managed 401(k) fund containing alternative assets and a Self-Directed IRA holding a specific privately selected investment are not the same thing.

People with eligible funds in a former employer’s 401(k) may already be able to complete a direct rollover into a Self-Directed IRA. Before doing so, investors should compare the features of both accounts, confirm rollover eligibility and obtain qualified tax or legal guidance when appropriate.

Ready to explore your rollover options?

Have an old 401(k) and want to learn how a Self-Directed IRA works?

Schedule a consultation with uDirect IRA Services to discuss the administrative steps for opening, funding and investing through a Self-Directed IRA. Click HERE

 

About the author

Written by Kaaren Hall, founder and CEO of uDirect IRA Services and author of Self-Directed IRA Investing: A BiggerPockets Guide. Kaaren has worked in the self-directed retirement industry for nearly two decades, helping investors understand how retirement accounts may be used to hold alternative assets.

Reviewed for administrative accuracy by: uDirect IRA Services
Published: July 14, 2026
Last reviewed: July 14, 2026

Educational disclaimer

uDirect IRA Services is a Self-Directed IRA administrator and does not provide investment, tax, legal or financial advice. uDirect does not recommend, endorse or perform due diligence on any investment. The information in this article is educational and should not be treated as a substitute for advice from a qualified tax, legal or financial professional.