401(k) Day Spotlight: Are Alternatives Like Crypto and Private Equity Right for You?
David Elder, CFP®, CEPA, Wealth Manager, Merit Financial Advisors
In case you haven’t heard, 401(k) plans recently got a facelift. President Trump’s executive order last month could provide employees with the ability to invest in private equity and cryptocurrency through their 401(k). This is a notable departure from the traditional menu of target date funds. On the surface, that might sound exciting, but it also means more to manage when it comes to risk tolerance, taxes, and market swings. While these investments may not be available through your employer anytime soon, it’s critical to do your homework before you jump in. Just in time for 401(k) Day, we’ll explore these options and other important 401(k) updates.
Exploring Alternatives: Private Equity and Cryptocurrency
Private equity lets investors back privately held companies instead of buying stock on the open market. The attraction is clear—if the businesses succeed, the growth potential can be substantial. The trade‑off? These investments are typically illiquid, harder to value, and often less tax‑friendly. That’s why, if your plan offers it, it can be simpler to hold them inside tax‑advantaged accounts like a 401(k).
Cryptocurrency comes with its own hurdles, particularly because of its volatility. When you own crypto outright, you need to have a digital wallet, but it’s unlikely that this would be required when investing through your 401(k). Still, the price dips can be stomach‑churning, and it’s best approached with caution and modest allocations.
Illiquid, tax‑inefficient assets can be positioned more effectively inside a 401(k). Outside of retirement accounts, strategies like charitable donations of appreciated crypto have grown more popular as a way to reduce tax bills.
Both assets diversify portfolios in unique ways. Private equity tends to move out of sync with public stock markets, potentially adding long‑term stability. Crypto, by contrast, can produce breathtaking gains but may also drop double digits in a single day—a challenge for anyone with a lower tolerance for swings. Regardless of your personal situation, these new investment options are providing investors with more options and access to investments that have historically been unavailable.
How Psychology Shapes Choices
Investment decisions aren’t just about spreadsheets—they’re also about mindset. Many investors avoid investing in alternative investments because they feel unfamiliar, while others chase trends out of fear of missing out. In fact, some have tried to “catch up” on retirement savings by overweighting crypto, which adds even more risk (and for the record, it’s not something I would recommend).
Advisors play an important role by helping clients align allocations based on risk tolerance and retirement goals. For some, that could mean starting with a small exposure to crypto or private investments and expanding only as comfort with the volatility grows.
Building the Foundation First
Before experimenting with alternatives and crypto in your 401(k), it’s crucial to shore up the basics:
- Pay off high‑interest debt.
- Maintain an emergency fund.
- Contribute enough to capture the full employer match.
- Aim to increase your contributions each year or when you receive raises.
Only then does it make sense to think about putting a few percentage points of your 401(k) into alternatives. Both crypto and private equity work best as long‑term plays, not short‑term gambles.
Policy Landscape to Watch
I’d be remiss not to mention SECURE 2.0, which recently adjusted several key rules:
- Required Minimum Distributions (RMDs): The age to begin mandatory withdrawals has increased from 72 to 73, with a gradual shift to 75 in the coming years. For many retirees, those extra years mean more time to plan Roth conversions, delay taxes, or let investments grow untouched.
- Inherited IRAs: Non‑spouse beneficiaries can no longer stretch withdrawals over their lifetime. In most cases, funds need to be drawn down within 10 years, which accelerates the tax bite and changes how families think about leaving retirement assets behind.
Taken together, these updates remind us that the retirement “rules of the game” don’t stay fixed. Keeping up with evolving changes isn’t just about avoiding penalties — it can open opportunities to make smarter choices about when to withdraw, what account to use, and how to pass assets on efficiently.
Key Takeaways
The 401(k) landscape is continuing to evolve. Private equity and crypto can each have a place in long‑term retirement strategies, but they’re not magic fixes and should be approached with caution. The most successful retirement strategies remain the old standbys: consistent saving, strategic tax management, and staying disciplined even when the markets test your nerves. To further explore investment strategies like crypto and private investments this 401(k) Day and beyond, reach out to Merit Advisors for complimentary consultation today.
Purchasing crypto comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, crypto markets and exchanges aren’t regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing.
Alternative Investments such as private equity can result in higher return potential but also higher loss potential. Changes in economic conditions or other circumstances may adversely affect your investments. Before you invest in private equity investments, you should consider your overall financial situation, how much money you have to invest, your need for liquidity and your tolerance for risk. Alternative Investments are speculative and involve a high degree of risk.