Big Changes Are Coming To Your 401(k)… Or Are They?!

Your 401k is probably your single biggest investment account, the tool you're counting on to retire someday. And now with a new executive order signed by President Trump, the headlines are screaming about big changes coming that could open the door to crypto, private equity, even real estate inside your 401k. But here's the question. Does more choice really mean better options? Or is this just another distraction that could put your retirement at risk?

At OmniStar Financial, we've been guiding successful families and business owners for more than 20 years. We've seen every trend come and go, and we know what actually builds wealth and what makes it last. So, in this episode of We're Talking Money, we're breaking down exactly what this executive order could mean for you. We'll focus on one of our sample families, Colt and Kimber Browning. They're in their peak earning years, retirement about 10 years away, and wondering if these new 401k changes are an opportunity or a trap. So, by the end of this episode, you're going to know what's real, what's hype, and how to make smart choices with your retirement savings.

Phil, Colt and Kimber are in the pre-retirement or their peak earning years. That's the stage that they're in. They're married. They're 52 and 48 years old. Household income of $400,000. They have $1.8 million saved mostly in their 401ks. They have two kids. One's in college, one's in high school. They have $150,000 left on their mortgage.

So, here's a little bit about their situation. They've built significant wealth in their 401k, but almost all of it is in traditional stock and bonds. With the executive order in the news, Colt is really excited about new opportunities like crypto, private equity, real estate. Kimber, she's on the other side of the coin. She's a little more worried about those types of things. Just meaning there's more risk.

Yeah. She's not comfortable with the alternative style investments. She's more accustomed to traditional stocks, bonds, cash, cash equivalents, that kind of thing.

So, I'm Colt. I'm going to pretend to be Colt. I can finally put some of my 401k into real estate or even crypto. Isn't that where real growth could be, Phil?

Well, if you look over the last several years, one can certainly argue that crypto and a lot of alternative investments have been gangbusters. So, as Colt being the one who wants to take a little more risk, I can see why.

Sure.

I can absolutely appreciate why he would want to because if you look over 10, 15 years, go back to 2010 when crypto came on the scene, no one had a clue what this thing was.

True.

But absolutely, Spell, you look at that and you say, "Yeah, I want to put money there." People were buying pizzas with their Bitcoin back in the day.

Crazy. Crazy stuff.

And today, some of the people back then that put a thousand bucks in it, today they're a billionaire.

Yeah.

So absolutely you could say that. She on the other hand has every right to be concerned. I don't think Kimber is being too conservative to say that she's concerned. Look, more investment choice inside that 401k. I know it sounds exciting and this new executive order that President Trump signed into law, I think on August 7th or 8th or whenever it is just a few weeks ago.

Yep.

I know that brings a lot of excitement because everyone's thinking now great real estate, crypto, all these alternatives, private equity, all of this stuff finally people are saying can be in my 401k. It doesn't mean it's right for everyone.

No, those things come with a lot of risk.

There are now a lot of good things about them, Spell, because they're usually not correlated with the market with the exception of crypto but they could be good.

They could be.

Yeah. But there is so much to unpack here. This bill or this executive order that the president signed absolutely doesn't guarantee that anything's about to happen.

Right.

Secondly, if it does, right now it's Department of Labor and ERISA. He's given them the order to review all of their existing guidelines and decide, does this make sense? Can we rewrite the rules a little bit and begin to push these things in? But there's so much more than that. The companies that issue these investments, they've got to make them fit in the 401k, right? They're generally very expensive with the exception of crypto. Most of these things are very expensive. And so, will that work?

And then the biggest thing, Spell, and you and I talked about this off camera, is the lack of knowledge, some of these really sophisticated investments. Do we really think it makes sense to put those in the hands of a novice investor, right, without a lot of counsel to be sure they're getting the right amounts of any of these things, if any, depending on where they are in their stage of life. I just don't think that Kimber's wrong to say, "Hey, I'm a little bit fearful." And I don't think that Colt is wrong wanting to have some of this risk, but I think it's way too early to decide if it's good or bad or anything in between.

You're putting extremely sophisticated investments that should, in my opinion, only be managed by professionals in the hands of potentially in the hands of everyone. One of the other things that we talked about off camera and I thought it was a great conversation is most people have everything that they've ever worked for in a 401k against maybe they've never had advice or it certainly would be against our advice to put everything that you have in a 401k. You need to diversify across the tax environments.

Kimber is probably thinking and I'm trying to put myself in the shoes of some of the clients that we work with. They are also thinking, I've worked my entire life to build this sum of money and a lot of times it's a lot of money. Do I really want to expose that to the volatility of say a cryptocurrency or a private equity investment? What do you think about that?

Yeah, great point. And what it makes me think about is yes, we don't want to expose ourselves too much risk, but what I worry about more are the ones that are behind and they say, "Wait, this is my chance to catch up."

Yeah.

And they throw all of it on red or all of it on black, as we would say at the roulette wheel. And you better hope it lands on the right color because if it doesn't, then you're further behind and you may not have time to catch up. If you're 50 years old, like Colt and Kimber, they're in, she's 48, I think you said, and he's into his 50s. These people don't have lots of time to catch up.

Yeah.

If they make too many mistakes and so I think that has to be considered. I get why they want it in their 401k. I totally get it. And democratizing something like a 401k environment where everybody gets everything. It makes sense.

Mhm.

It makes sense at one level, but man, the fiduciary controls.

Yeah.

How are these employers going to deal with this? Because look, if the government says here, you have to put this in your plan, but by the way, you also are required to assume fiduciary responsibility. That's a little bit of an oxymoron, right?

A little bit.

So, you're going to tell me we have to do this. Fortunately, the way this will work, and I don't think ERISA would ever change this, so everybody out there listening who's excited about this stuff potentially coming into their plan, keep in mind, it'll be up to your employer, right, to decide if they're willing to put these things inside of the plan. And as a fiduciary and as we serve as fiduciaries on a lot of these plans, we'll help that employer decide based on their core group of people or all of their people for that matter, does this really make sense?

Yeah.

Do your employees, does it make sense for you to add these kinds of things? And if so, how much of it?

Yeah.

And then what level of controls are you going to give them? And in a 401k plan defined contribution, they have all the control, right? So they can do whatever they want. So then what level of education are we going to have to build in there to be sure those employers can be absolved from the risk? Because there's a lot of risk. There's a lot of risk. It's

We'll get right back to today's show, but first I'd like to ask you a quick favor. If you're enjoying this episode, hit that like button and make sure that you're subscribed to our channel so you don't miss what's coming next. And hey, if something in today's episode has you wondering about your own financial plan, why not get a second opinion? Visit omnistarfinancial.com to schedule a consultation with one of our team members. It's quick, it's easy, and it could make a huge difference in your financial future. Now, let's get back to the show.

I think, and I wasn't in business for the meltdown that we had, the dot-com bubble, but when I hear

And that was a meltdown, a tremendous meltdown.

Yeah.

Over three years. I was in it.

I know.

Deep in it, and three years to watch the tech world go down 74%.

Yeah.

Believe me, people were jumping off cliffs.

I know it's on the table. We know that it's on the table. It's going to be up to DOL, ERISA. They're going to go back. They're going to review, see what can be done. Then it's going to ultimately be up to individual employers.

Let's take it a step further than that. Let's say it gets through DOL and ERISA and it gets through the employer and your employer says, you know what, we're going to implement this. We're going to put the educational pieces in place to absolve us of any risk and then our participants are free to do what they will with this change. There's obviously going to be some pros and there's obviously going to be some cons. Talk about some of the pros and who this might truly benefit versus someone who is gung-ho to get into crypto and they have no idea. Talk about maybe a little more savvy investor.

So one, I would talk about the beauty of dollar cost averaging.

Yeah.

In a 401k, at least if they're buying these alternatives.

True.

Or these more high-flying investments that certainly have the opportunity for greater performance, which I love.

Yep.

Dollar cost averaging, at least they're not doing it in one lump sum, right? They get to do it over time, right? And so if crypto falls 10% 20% 30% then great, they're buying more at a cheaper price.

Sure.

Or if it's a private equity or if it's real estate or whatever it is. I think that really helps eliminate a lot of the risk. What I worry about more is the people not knowing how much makes sense for them. They throw a lot in there and then they get freaked out when it changes. Then they pull out of it and then it starts going up again. Then they jump back in. All of a sudden their dollar cost averaging can be tossed out the window. The effect of it is no longer benefiting them because they start to trade and a lot of these defined contribution plans today allow people to move in and out of securities at least every month.

Yep. 30 days.

So there might need to be some rules or mandates that would help eliminate some of that. I worry about the trading side where people could get themselves in trouble because of emotion but dollar cost averaging in general I think that would make sense. So I think with everything, Spell, it's just balance, right?

It is balance.

I don't think this is necessarily the end of the world or worse happen but it is going to expose people to greater risk and if they don't know what they're doing that's not good. It's going to expose the employer to more risk. There's no way to absolve that employer of all risk. There's just no way. As a fiduciary you are going to be held accountable, which says to me that the government is not going to be able to force this thing in. And so I think you'll see a lot of employers who say, you know, we're just not going to put this in our plan.

I think you're right.

And I think I'll be one that will help advocate for not putting it on your plan. But there are other groups that I can think about that we work with anyway that I would say, you know, these will be fine because they're a sophisticated group of people. They'll listen to us. We can help them decide what their allocation needs to look like.

Sure.

And I think they'll be fine.

Yeah.

But everybody needs to understand a couple things. It's going to probably be more expensive. There's going to be more risk. And there's a chance that none of this happens.

That's true. That's also true.

It's not a mandate. It is an exercise right now that could be one in futility.

That's true.

Or it might come to pass. And I think it'll be well into 2026 before we really know what this thing's going to look like, Spell. But there is a lot of excitement because people think finally we're democratizing the system so we can have all this stuff. I'm going to own some Bitcoin. Give me some Bitcoin and I think I'm going to buy me some private equity and all kinds of stuff.

Now I'll go back to what I said a little while ago. There is one really cool point here and that is the wealth gap in America continues to widen.

It's true.

it continues to widen and I don't like that, because I see a lot of hardworking people that just aren't getting ahead. If they can be educated the right way, and if they get the right kind of alternatives in their plan where they do get exposure to things that have great potential for performance. You know what, the people on Wall Street shouldn't be the only folks that have access to that.

It's true. Rank and file people who are in a 401k, who are busting their can to help us live better lives because they're manufacturing the things that we all require or they're serving us in some way. I think it'd be awesome to see them be able to have a leg up, 100%. But they've got to have the right advice to do it. Otherwise, I think they actually end up in a worse position.

Yeah. The wealth gap could be closed with this in a huge way, potentially. I agree with you. I agree with you. I think that when done in a balanced way, to use your words, when done in a balanced way, this could be a very, very good thing.

Yeah.

But if you look at it from a more negative perspective, if you will, and we go back to the .com bubble, and someone who hasn't received good advice or hasn't done this in a balanced way, and they wake up and 70% of their 401k balance, everything that they've worked for, is gone. That's a tough... That's a tough punch to stomach.

Well, particularly when they all of a sudden are now riddled with emotion.

Yeah.

And they say, "You know what? I'm just going to go to the sidelines," and they stay there for a number of years while the market recovers, right? And they don't.

Yeah.

They're in a much worse position, Spell. And that happened in the .com bubble. I remember well people jumping on the sidelines, and they could never get themselves back into the market until it had fully recovered. They were too scared to do anything.

Absolutely. So the paralysis is real, and I wouldn't want to see that happen. But I do think if this is handled the right way, this could be great, but I think there's huge possibil... or huge opportunity for this to be not great.

Yeah, there's a lot of risk here. So this got to be carefully considered. This is not something that we should be rushing. Whether you like President Trump or not, I think his motivation here is right, and it could help close the wealth gap, but this could be deleterious to a lot of people if mishandled.

When you hear the headlines, and headlines are attractive. People get paid a lot of money to make a headline, and they're everywhere today. They're all over the place. When it comes to this kind of stuff that we're talking about, man, the headlines have just been everywhere.

Oh, I know.

In your face, because all of a sudden people have decided this is real. This is happening.

Yep.

And it may or may not. It may or may not. And I read the journal every day, and it was on the front page of the Wall Street Journal. No surprise there, because it was everywhere else. But don't get distracted and don't panic about these things. Utilize somebody who knows what they're doing. I think that's the best thing that we can tell listeners right now. If this thing does pass muster and all of a sudden it's put into place, you've got to have somebody who knows what they're doing to help you with it.

I'll just say this: these new options may or may not show up in 401k plans across America. I think what really matters, and whether they do or not, I think it's the timeless principles, they still win.

Yeah.

It's diversification. It's smart tax control. It's avoiding hype chasing.

One thing I wanted to say earlier, Spell, is I think we have this situation that could exacerbate the problematic side of this, and that is younger people, and even middle-aged people, who want to get rich quick.

Yeah.

And man, they see this as a potential for that, and it may or may not be. And frankly speaking, our government has never been the best steward of money, and our government has never been the best... they've never been really very good at giving financial advice. And so to think that we want to do something like this right now, look, I got to go slow with this one and really think through how it's going to work, because I think the outcomes could be really good.

Yeah.

Think the outcomes could be really bad. And the fact that our government is part of it. As much as I think President Trump's reasoning behind it is good, there's a lot of moving parts here. And a billionaire like President Trump, if this doesn't work out so well, it doesn't affect him at all. He won't even be around to deal with this.

Yeah.

If it doesn't go so well.

But true.

I just think we have to be so careful. Timeless principles. Stick to those and you're always going to do well.

We'll just have to see if this thing turns out. We'll see.

If you enjoyed this, you'll love our episode on the silent tax mistakes that are draining millions.