Alternative Investments in Self-Directed Retirement Plans

Published on September 1, 2026

An educational overview by KJLK & Co., LLC

Most retirement accounts hold some combination of publicly traded stocks, bonds, and mutual funds. That is a reasonable foundation, but it is not the full universe of what a retirement plan is permitted to own.

Self-directed retirement plans allow investors to hold a much broader range of assets, including private-market and alternative strategies that are otherwise difficult to access inside a traditional brokerage account. The purpose of this overview is to explain what those strategies are, why a retirement account can be a natural place to hold them, what rules apply, and what questions an investor and their advisor should work through before committing capital.

What Counts as an Alternative Investment

“Alternative investments” is a broad label covering assets and strategies outside conventional public stocks and bonds. In practice, they fall into a few recognizable families.

Private market strategies

• Private equity – capital invested in privately held companies, typically with the goal of improving operations or accelerating growth before an eventual sale or public listing.
• Venture capital – equity investments in early-stage companies, with a wider range of outcomes and longer time to realization than most other strategies.
• Private credit – direct lending to companies that borrow outside the public bond markets. Returns come primarily from interest income rather than appreciation.
• Real estate and infrastructure – ownership of physical property or long-lived assets such as energy, transport, and utility infrastructure, usually held for income as well as appreciation.
• Non-traded REITs and business development companies (BDCs) – pooled vehicles that hold real estate or private loans respectively, structured for income distribution but without daily exchange trading.

Hedge fund strategies

Hedge fund is a structure, not a strategy. The label covers a wide range of approaches, several of which behave very differently from one another:

• Long/short equity – buying stocks expected to appreciate while selling short those expected to decline, aiming to reduce exposure to overall market direction.
• Global macro – positioning around broad economic developments such as interest rates, currencies, and commodity cycles.
• Event-driven – investing around specific corporate events such as mergers, restructurings, or bankruptcies.
• Relative value and market-neutral – seeking to profit from pricing relationships between related securities rather than from market direction.
• Managed futures – systematic trading of futures contracts across asset classes, often trend-following in nature.
• Credit and multi-strategy – focused on debt instruments, or combining several of the above under one manager.

The practical point for an investor is that these strategies are not interchangeable. They carry different risks, different liquidity profiles, and different sensitivities to market conditions.

Why a Retirement Account Can Be a Natural Fit

Several characteristics of alternative investments align unusually well with the structure of a retirement plan.

Time horizon

Many private-market strategies require capital to remain committed for years. Investors are compensated in part for accepting that constraint. Retirement assets are, by definition, long-term capital that is not expected to be spent in the near term, which makes the tradeoff more tolerable than it would be in a taxable account funding shorter-term needs.

Tax treatment

Alternative strategies often generate income that would be taxed at ordinary rates if held in a taxable account – interest from private credit, short-term gains from active trading, and distributions from income-oriented structures. Inside a tax-deferred or tax-free retirement account, that income is not taxed as it is earned. The benefit of tax deferral is therefore often larger for these strategies than for a buy-and-hold equity position.

Diversification

A portfolio concentrated in public equities and bonds is exposed to those two markets moving together, which they have done during several recent periods of stress. Strategies with different return drivers may behave differently in those environments. Diversification does not guarantee against loss, but a portfolio built on more than two sources of return has more ways to withstand a difficult market.

The Rules That Apply

Self-direction expands what a retirement plan can hold. It does not change the fact that retirement plans operate under specific IRS requirements. Four are worth understanding before investing.

Prohibited transactions and disqualified persons

A retirement account cannot transact with the account holder or certain related parties, and the account holder cannot personally benefit from an account-held asset outside of the plan itself. This is straightforward to observe with a fund investment, but it is a genuine constraint with directly held assets such as real estate. Violations can disqualify the entire account, so the rule deserves attention rather than assumption.

Unrelated business taxable income

A retirement account can owe tax even though it is a tax-advantaged vehicle. If an investment generates income from an operating business, or uses debt financing, a portion of that income may be treated as unrelated business taxable income (UBTI) or unrelated debt-financed income (UDFI) and taxed inside the account. This arises with some partnership investments and leveraged strategies. It does not make an investment unsuitable, but it should be understood in advance, not discovered at tax time.

Annual valuation

Custodians are required to report the fair market value of every asset held in a retirement account each year. For publicly traded securities this is automatic. For a private investment, someone must supply a defensible valuation. Investors should confirm who provides that figure and on what basis.

The custodian’s role

A self-directed IRA custodian holds assets, processes transactions, and handles reporting and administration. A custodian does not evaluate, recommend, or endorse investments. That responsibility rests with the investor and their advisors – which is precisely why understanding the category matters before selecting within it.

Holding Alternatives Directly Versus Through a Pooled Vehicle

An investor who wants alternatives exposure in a retirement account has two broad paths, and the practical differences between them are significant.

Investing directly in individual strategies

Building exposure one investment at a time means evaluating each manager independently, meeting each minimum separately, and administering each position on an ongoing basis. Minimums for institutional-quality private funds are frequently high enough that assembling a genuinely diversified set of them requires substantial capital. Each investment also carries its own subscription process, capital calls, reporting cycle, and tax documentation.

That last point deserves emphasis in a retirement context. Partnership investments typically issue a Schedule K-1 to each investor annually. An account holding a dozen private positions receives a dozen K-1s, often arriving late, each of which may need to be reviewed for UBTI. The administrative burden compounds.

Investing through a pooled or multi-manager vehicle

A fund that allocates across many underlying managers consolidates much of that work. The investor holds a single position; the fund’s manager handles selection, ongoing diligence, allocation, and the administration of the underlying investments.

The potential advantages are meaningful:

• Diversification across many managers and strategies is achievable at an investment size that would only purchase one or two direct positions.
• Manager selection and ongoing monitoring are performed by professionals whose function is to do that work continuously.
• Administrative and tax reporting is consolidated. Where a pooled vehicle handles underlying K-1s and issues a single annual tax document to the investor, the reporting burden is materially reduced.
• A single subscription replaces multiple separate processes, each with its own paperwork and eligibility verification.

There are tradeoffs. A pooled structure adds a layer of fees on top of those charged by the underlying managers, and the investor delegates selection decisions rather than making them directly. Whether that tradeoff is favorable depends on the quality of the manager, the fee structure, and whether the investor would realistically have built comparable diversification on their own.

Questions to Work Through Before Investing

Any alternative investment held in a retirement account warrants the following before capital is committed.

• Many private offerings are limited to accredited investors, qualified clients, or qualified purchasers. Verify which standard applies and whether it is met.
• Understand the commitment period, redemption terms, any gates or limits, and what would happen if funds were needed unexpectedly. Retirement assets face required minimum distributions at a certain age, and illiquid holdings can complicate meeting them.
• Understand all layers, including management fees, performance fees, and any fees charged by underlying investments.
• Ask how the investment is valued, how often, and by whom.
• Tax treatment. Determine whether the investment is expected to generate UBTI or UDFI, and what tax documentation the account will receive.
• Custodial acceptance. Confirm that the custodian can hold and administer the specific asset before subscribing.
• Consider how the investment relates to everything else in the portfolio, and what share of total retirement assets is appropriate given the investor’s timeline and circumstances.

About KJLK & Co. and the Square One Fund, LP

Next Generation Trust Company can custody investments in the Square One Fund, LP, a multi-manager fund managed by KJLK & Co. The fund allocates across a broad group of underlying alternative managers spanning hedge fund strategies, private equity, private credit, venture capital, real estate, and business development companies, with the objective of providing diversified exposure to these categories through a single professionally managed structure. The fund is offered as a private placement to eligible investors and handles underlying manager tax reporting at the fund level. Offering terms, eligibility requirements, fees, liquidity provisions, and risk disclosures are set out in the fund’s official offering documents, which prospective investors should review in full. Interested investors and advisors may request those materials directly from KJLK & Co.