Investors allocate their money in all kinds of ways. Some pick stocks; others buy real estate. Some allocate to gold; others to Bitcoin. But there’s one investment vehicle almost everyone ends up using: the retirement account. Roughly six in ten Americans have one today.[1]
Despite their ubiquity and tax advantages that can benefit the individual investor, retirement accounts have historically been limited in scope. Employer-sponsored plans typically offer a relatively small menu of mutual funds and ETFs. Individual Retirement Accounts (IRAs) have more flexibility, but they’re still confined to public securities.[2]
These limitations help explain the growing popularity of Self-Directed Individual Retirement Accounts(SD-IRAs). For many investors, retirement savings represent their largest pool of capital, and they want more control over how it’s allocated.[3]
Crowd Street’s partnership with Equity Trust is built around this very idea: retirement investors may want access to a broader set of options. Specifically, private markets. For several reasons, these assets may align with retirement capital in some cases.
Where SD-IRAs and Private Markets Align
As SD-IRAs have grown in popularity, so have private markets. Private equity, private credit, and commercial real estate are no longer niche corners of finance. Individual investors increasingly have access to the types of assets institutional investors have for decades.[4]
That access has brought excitement, but also hesitation. Private market investments work differently. They involve longer holding periods, less liquidity, a more aggressive risk profile, and unfamiliar tax structures.[5] For investors used to clicking “buy” and “sell,” that can take some adjustment.
SD-IRAs are one account structure investors may use for these investments. In several ways, the mechanics of self-directed IRAs and private markets may align in some circumstances, including duration matching, tax treatment, and diversification. But it should also be noted that private markets carry substantial risk, which may not be a fit for a retirement account. Let’s take each in turn.
Duration Matching: Illiquid Capital Meets Illiquid Investments
One of the defining features of private market investing is illiquidity. In a private markets fund, capital is typically committed for several years, with limited, if any, opportunities to withdraw.
Retirement accounts are also illiquid by design. Under normal circumstances, you can’t withdraw IRA assets until a defined time point, at least not without meaningful penalties. That capital is meant to stay invested until the account holder reaches a certain age, not traded in and out.[6]
This is the first way SD-IRAs and private market structures may line up. When long-term capital is invested in long-term strategies, the long holding horizon may be more consistent with limited liquidity. Inside a self-directed IRA, the expectation of patience is already baked in. That makes multi-year holding periods easier to plan around than they would be in a taxable account, where liquidity is often assumed.
With this context, it is also important to be transparent about situations where illiquid investments may not be a natural fit for a retirement account. Illiquidity limits an investor’s ability to rebalance or reallocate within the account, as capital is typically locked up for the duration of the investment. If a particular investment underperforms, those funds generally cannot be moved to reduce exposure, which can constrain overall portfolio flexibility. This is an important consideration when evaluating IRA allocations.
Tax Treatment Considerations
Tax treatment is another factor investors often evaluate when considering whether to hold private market investments in an IRA.
Many private market strategies—like private credit and commercial real estate—may generate a meaningful portion of their returns as income. In a taxable account, that income is typically taxed each year, often at ordinary rates.
Inside an IRA, the mechanics are simpler. In a traditional IRA, gains typically compound on a tax-deferred basis until withdrawal. In a Roth IRA, qualified withdrawals may be tax-free at the time of the withdrawal. Either way, the account structure handles the tax treatment, rather than forcing investors to manage it investment by investment.[7] These tax features do not apply uniformly in every case. Certain private market investments held in an IRA, including some leveraged real estate investments and investments in operating businesses, may generate unrelated business taxable income (UBTI) or other tax consequences that can result in taxes being owed by the IRA.
This doesn’t change the underlying risk or return profile of a private investment. But it can change the timing and character of taxation compared with holding the same investment in a taxable account.
However, it's important to remember that tax aspects of such investments can be complex and may differ depending on the property or offering and on individual tax circumstances. Neither Crowd Street or its affiliates offer tax or legal advice. Investors are strongly encouraged to seek advice from qualified tax professionals and/or legal experts regarding the tax consequences based on their particular circumstances.
Diversification Considerations
Diversification is a common objective for retirement investors, and it’s become harder to achieve in public markets alone.[10]
Public markets today are smaller and more concentrated than they’ve been in decades. In the S&P 500, a small group of companies now drives a disproportionate share of returns. Last year, roughly a third of the index’s performance came from just six stocks. Even investors who hold broad-based ETFs may be more concentrated than they realize.[8]
Private markets may have the potential to help address that imbalance. Certain private assets may behave differently from public markets over certain periods, but correlations, valuations, and outcomes vary by asset class, manager, market conditions, and time horizon.
Of course, none of this eliminates risk. Like all investments, private assets come with important considerations—including liquidity constraints, market conditions, and manager execution. There is the potential for loss of principal, which may be elevated relative to public markets given longer time horizons and greater operational demands on managers. Private investments may also involve higher fee structures and fewer disclosure requirements than investors are typically accustomed to in public market equivalents.
The point, simply, is that when paired with public markets, the diversified nature of private assets can introduce different return drivers within a portfolio, although any diversification benefit depends on the specific assets selected and does not eliminate the risk of loss.
[[[ Crowd Street and SD-IRAs: Bringing Long-Term Capital and Private Markets Together ]]]
Every asset class has its quirks, and for investors who value control, deciding where each dollar belongs requires careful consideration. For some investors, the long-term nature of IRA assets may align with the longer holding periods common in private market investments. Tax treatment may also be one factor in that analysis, subject to investment-specific and investor-specific considerations.
Crowd Street provides access to eligible offerings through its platform for investors using self-directed IRA custodians. Through the platform, individuals can access a wide range of offerings across private equity, private credit, commercial real estate, and venture capital—all on a self-directed basis.
Crowd Street’s integration with Equity Trust is just one way the platform is extending this access to more investors. With other SD-IRA custodians also available, Crowd Street offers a process for firms interested in offering private market access to their account holders.
For investors looking to diversify their retirement portfolio—or for SD-IRA custodians seeking a reliable private markets partner—consider reviewing private market offerings available through Crowd Street and their materials carefully, and consult your advisers to determine whether an investment fits your objectives and circumstances.
