New Executive Order Will Allow Real Estate to Be Bracketed Into 401(k)s, Marking a Potential Investment Strategy Game Changer

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Landlords could soon be able to include their property assets in their 401(k) retirement plans. The White House has confirmed that President Donald Trump plans to sign an executive order, dated Aug. 7, that will allow alternative assets, such as real estate, to be included in 401(k) retirement plans.

Modifying Existing 401(k) Plans

As first reported by Bloomberg and Reuters, a new White House order will modify existing 401(k) plans to allow alternative types of assets, such as real estate, cryptocurrency, and private equity, to be included in retirement savings accounts, which are typically reserved for stock assets. 

Regarding real estate, a White House press release stated:

Sec. 3.  Democratizing Access to Alternative Assets.  (a)  For purposes of this order, the term “alternative assets” means: 

(ii) direct and indirect interests in real estate, including debt instruments secured by direct or indirect interests in real estate.

By including the terminology “direct or indirect interests in real estate,” the new order applies not to traditional REITs—which are traded on the stock market— but real estate holdings that are not traded publicly, such as private commercial or residential property investments.

This means 401(k)s could now hold nonpublic real estate assets—including those owned by individual (mom-and-pop) investors—if plan fiduciaries determine those investments are appropriate and allowable under the revised guidance.

$9 Trillion in Play

There still appears to be a certain amount of fine-tuning required to determine how private real estate holdings, such as rental properties, can be effectively integrated into 401(k) plans. Currently, many real estate investors hold their assets in Roth IRAs, with their cash flow accumulating tax-free. The new White House order directs the Labor Department to work with the Treasury Department and the Securities and Exchange Commission (SEC) to implement regulatory changes that allow alternative asset managers to access employer-sponsored retirement plans.

According to investment brokerage Vanguard’s annual report, “How America Saves,”  the average 401(k) balance across all age groups is $134,128 as of year-end 2023, with $9 trillion currently invested in 401(k) plans—which is untapped capital in the eyes of many asset managers.

A ‘Game Changer’

Private equity and real estate fund managers have been working with retirement planners to prepare for a deluge of new money, according to the Washington Post, which refers to the latest Trump order as a “game changer.”

Potential Ways for Landlords to Invest Their 401(k) Retirement Account Into a Real Estate Account

It’s unlikely that the new order will allow investors to access a regular corporate 401(k) and go out and buy a duplex. Instead, the order will most probably lead buyers toward one of these investment structures.

Self-Directed 401(k) (aka solo 401(k))

This works like a Roth IRA.

If your employer plan adopts new alternative asset rules, or if you roll over to a solo 401(k), you could direct funds into any IRS-permitted investment, including real estate.

The property is owned by the 401(k)—not you personally.

All expenses (repairs, taxes, insurance) must be paid by the 401(k), and all income must flow back into it.

You cannot live in or personally use the property (IRS “prohibited transaction” rules).

A private real estate fund in your 401(k)

Your employer plan may offer a private real estate pool that utilizes investor capital to purchase rental units, commercial buildings, or development projects. You’d buy “shares” of the fund inside your 401(k), rather than holding the deed to a property. 

This is easier for most mom-and-pop investors because the plan handles all the legal, management, and compliance issues. However, it could minimize individual investors’ involvement in the property selection process. 

Partnership or LLC owned by the 401(k)

This works for syndications, with close adherence to IRS guidelines.

Your 401(k) could own part (or all) of an LLC that buys property. It is often used in self-directed investment setups, where multiple investors pool their funds. You and investors can’t personally benefit from or work on the property.

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Next Steps for Real Estate Investing With Your 401(k)

As the guidelines from the DoL and SEC are not yet available, there is a waiting period (likely six to 18 months) before your employer or plan custodian will know precisely what they need to do to incorporate real estate investments into your 401(k).

There will probably be many similarities between a Roth IRA and 401(k)s. If your employer’s plan doesn’t offer private real estate, you could roll funds into a self-directed 401(k) or self-directed IRA that does.

However, if you want to invest using individual properties, regular brokers like Fidelity or Vanguard usually won’t hold a deed, so you would probably need to use a custodian specializing in alternative assets. 

The next step would be to find a compliant investment property that is not for personal use and does not allow family members or friends to stay in it for free, with strictly separate bank accounts from personal ones and all transactions going through the 401(k) account. The property must also be purchased through an arm’s-length transaction, with a clear paper trail—i.e., not buying a property you already own with your LLC or from a relative.

Final Thoughts

Stacking up your 401(k) with real estate investment properties won’t be possible because real estate is illiquid, so you will need enough other liquid assets in your 401(k) to meet required minimum distributions (RMDs) later. Additionally, 401(k)s, although often frowned upon by many real estate investors, are favored by corporations because they are generally solid investments that perform well over the long term.

Real estate and other alternative assets are riskier. The new order could create a “Wild West” of financial advisors and fund managers trying to access people’s existing 401(k)s for crypto, real estate, and other investments, with the potential for unscrupulous players to whittle down savings by applying high fees or steering clients toward poor investments.

The new White House order was designed to give investors more opportunities and alternative asset managers the tools to attract more clients. However, there will inevitably be a gray area, so tread carefully when the floodgates open.