Investing money for retirement is an age-old venture. In early days, people used to invest in properties, farms, and even livestock. With the growth in technology and finance sectors, many individuals opt for retirement plans to save money for future. However, what if you need the same money at present or what would you do if you face an unexpected market crunch. The Solo 401k retirement plan for self-employed individuals answers this problem. It allows borrowing from the retirement account for unmet financial requirements.
What is the procedure for borrowing from Solo 401k?
Internal revenue code section 72 (P) and 201 EGGTRA allows a solo 401(K) plan owner to take a loan without any penalty. A Solo 401 k loan can be taken for any reasons. For a better understanding of this feature, let us review the regulations bounding these loans.
Loan criteria:
- One can take a Solo 401K loan any time using the accumulated balance as a collateral.
- A Solo 401(K) participant can borrow up to $50,000 or 50 percent of the account balance depending on whatever is less.
- The interest rate is calculated on the basis of prime rate plus one percent. It is decided during the time of loan application. As reported on July 28, 2015, the prime rate is 3.25%, which means you can avail a loan for 4.25% interest.
- Loan has to be paid within five years or less depending on installment frequencies. You need to pay at least one quarterly premium to avoid defaulting on the loan.
What makes it an excellent option?
The latest economic meltdown forced financial institutions to scrutinize every single loan while upgrading borrower eligibility criteria. Banks and other financial institutions have severely mitigated their loan capacity to self-employed business owners, creating financial burden on self-employed business owners. The Solo 401(k) plan is an efficient financial tool for any self-employed business owner seeking immediate funds for their business or to help pay personal expenses.
How Solo 401k loan can help in financially stressful situations?
What makes Solo 401k loan a viable financial assistant is the ability to use it without being accountable for the underlying purpose. You can use it for any purpose whatsoever and all that matters is that you must comply with all the loan repayment requirements.
- One can use the loan to repay debt.
- One can transfer the money to third party to get more interest.
- It can be used for paying college expenses.
- It can help survive an unexpected emergency.
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