Using 401k / IRA to co-invest
Just got an offer to join a fund that will let me co-invest a pretty good amount in the fund. Wondering about using the 401k I’ve accumulated during my time in IB. Can you convert a Roth 401k into a self-directed Roth IRA and use that to co-invest? Thinking it would mean you don’t need to pay any taxes on gains. I know there’s a story out there about Peter Thiel having a Roth IRA with like $5 billion in it or something because he used it to invest in private companies and now doesn’t have to pay a dollar of taxes on it. Can you do the same with your employer’s fund?
Not for long thanks to Congress. Peter Thiel would be taxed on basically his entire Roth IRA if forced to distribute. The people who put these people in office SUCK.
Ok thanks for the political comment, so you’re saying right now it is possible to co-invest in closed-end funds with a 401k? Do you have experience doing so?
I could definitely be wrong but I think you have to convert the 401k to a self-directed IRA first, since your 401k is run by your company’s investment manager and your new employer’s PE fund will almost definitely not be an investment option in that 401k plan. Not sure that any 401k plan in the world let’s you invest directly in PE since you’d have to be an accredited investor and like >90% of people are not. I’m OP by the way, that’s why I included that bit about converting to IRA first.
Need a self directed Roth IRA to do this. Very specific rules for these accounts and need to find a custodian to do it, who will charge a fee. Self directed Roth IRA should be differentiated from a Roth IRA you run yourself, such as through TDA.
Private equity may actually be an option for 401(k)s in the next five years - there was a department of labor letter recently that opened it up.
See attached. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-ce…
Still need to launch the product type but with all of the megafunds buying secondaries firms, getting diversification by vintage is actually possible. I believe Partners Group has a 9b+ fund that mirrors what a 401(k) option would look like, so some of the more marquee funds who already have monster semi-liquid credit / real estate platforms (looking at you BREIT / Blackstone Credit vehicles) I would expect to launch a product in next couple years.
I mean, I’d be pissed too if I had 10 figures that I thought was tax-free and ended up having to liquidate and pay half of it, but it’s really hard to feel bad that accounts meant for middle class retirement are no longer going to shield taxes for people with $10M+…
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