One of the Solo 401k loan questions from one of our partner we work with and have mutual clients: I have a client who has a 401k loan currently who plans to leave his employer and become self employed. Can he transfer his outstanding loan to a Solo 401k so that it doesn’t become a taxable distribution (ie maintain the tax deferred status of the loan)?
No, the existing loan with the current 401k custodian cannot be transferred. But there is a way to make it work. We just had exactly the same situation with one of our newest clients. Here is what I suggested and he did:
Hope this helps!
Thanks for that workaround that probably could be accomplished.
A lot of the 401k administers for employers only allow a loan to be taken out for a primary residence up to 180 months or 15 years but for all other purposes it’s a 5 year term at 4.25% rate (even though interest is paid back to plan).
With Solo 401k, can plan participant borrow up to 50% or 50k or any reason or does it have to abide by similar rules?
Our Solo 401k plan documents allow Participant Loan to be taken for any reason. The loan terms are as follow: amortized over five years with the reasonable interest rate as Prime plus one percent (currently 4.25%). If the loan is used for the purchase of a primary residence, then the length of the loan can be stretched to 15 years.
The interest rate is fixed at the time of obtaining the loan and will not change during the loan term. The loan can be paid off early if desired, there are no pre-payment restrictions.
Related search terms:
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- Solo 401k loan terms