Solo 401k Loan Calculator: Amortization Schedule and Loan Payments
Solo 401k Plan account holders are allowed by law (IRC Section 72(p)) to obtain a loan from their Qualified Plans (known as Individual K or Solo 401k) if the plan documents are permitting such loan. The solo 401k loan provide a way for participants to have access to their retirement funds without taxes and penalties.
A Solo 401k loan can be taken at any time from the balance in the account. The term of the loan typically five years, or it could be less, but the payments must be made at least quarterly, or it could be monthly. The maximum loan amount is $50,000 or 50 percent of the value in the account (whichever is less). Reasonable rate must be set as the interest rate for the loan. Solo 401k loan rules allow for the lowest rate to be the Prime Rate. The loan interest rate is not allowed to be changed during the life of the loan and is to remain the same as specified on the loan application. The reasonable interest rate for the Solo 401k loan would be that which is charged by commercial lender for a loan made under similar conditions. An example would be Prime Rate + 1%.
There are no restrictions regarding the use of the Solo 401k loan. It can be used for repayment of personal debt at the high interest rate, to purchase personal goods, pay student tuition, etc. It can be even used for a transaction that would otherwise be prohibited within a Solo 401k.
Choosing the right Solo 401k provider:
Although the IRS allows Solo 401k plan participants to take out a loan from the plan, not all plan providers offer this option and/or facilitate the process. Check with your plan provider to see if they offer Solo 401k loan option: Click here.
Instructions for using the Solo 401k Loan Calculator:
Principal – enter the loan amount
Terms – enter number of years (no more than 5)
Interest Rate – enter loan interest rate
Click Calculate. Be sure to print out amortization schedule for your records in order to make the loan payments on schedule.