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Solo 401k Loan

As a preferred retirement plan of the self-employed, a Solo 401K plan is a great way to invest in non-traditional assets, such as precious metals, real estate, start-up businesses and tax liens.

This is also a preferred choice for those seeking the Solo 401k loan option since each Solo 401k participant can borrow from the plan up to the allowed limit.

401k Plan Loans

Providers Offering Solo 401k Loan Options

Fact: Not all Solo 401k providers allow the loan option.

It is important to note that not all Solo 401k providers allow the loan option. Check and make sure that your plan does not have any restriction on the Solo 401k loan option.

How does a Solo 401k Loan Work?

Before you can take the money out of the Solo 401k plan, obtain a loan application and set up a payment schedule. These are important documents to keep in your records to avoid any ambiguity regarding the loan details.

The Solo 401k loan option will allow each participant of a Solo 401k plan to borrow up to 50% of the entire account value. So for example, if you have $20,000 on your Solo 401k account, you can borrow up to $10,000.

On the other hand, if you have $100,000 or more in your Solo 401K plan, it is important to note that the maximum amount that any participant can borrow from his or her Solo 401k plan is $50,000. The minimum amount for a Solo 401k loan is $1,000. It is important to understand and abide by these limits to avoid penalties and tax charges.

Solo 401k Loan Option:

  • Tax-free and penalty-free
  • Borrow for any purpose
  • Up to $50,000 or 50% of the account balance
  • Maximum 5 year payback period

Solo 401k Loan Process

Set up a Solo 401k plan

Check that the plan policy allows the Solo 401k loan option

Fund the plan

A Solo 401k plan can be funded with contributions or rollovers from a 401k, IRA, or other retirement plans

Loan Application

Fill out a loan application that specifies the borrowed amount, interest rate, and payment schedule.

Loan Approved

Receive the loan and make payments as per schedule

Solo 401k Loan Example

To better illustrate how a Solo 401K Loan works, let’s take a look at an example. Let’s say that David and Diane are two partners in a consulting firm. They each have an IRA and need to borrow the money for personal uses. However, borrowing is not permitted with IRA accounts. David and Diane are now looking into setting up a self-directed Solo 401k to utilize the loan option.

Rollover and Solo 401k Loan 

After the plan is set up, both David and Diane will need to rollover their respective IRA’s to their recently created self-directed Solo 401k plan. They will deposit their respective IRA into separate Solo 401k checking accounts. After the rollover, David has a balance of $150,000 in his Solo 401k plan. With the Solo 401k loan option, David can now borrow up to the $50,000 limit from his Solo 401k plan.

Solo 401k Loan Limit: $50,000 or 50% of Plan Value

The maximum amount of a Solo 401K loan can decrease if the principle amount in the Solo 401k account were to decrease. Let’s say Diane has $50,000 in her Solo 401k account, she will only be able to borrow up to $25,000 as the 50% rule will apply.

It’s worth mentioning that there are a lot of details involved in managing a Solo 401k plan. The same goes for Solo 401k loans, so it is important to do comprehensive research on the topic. Other factors you should understand are the required interest rates, payments, and documents to facilitate the Solo 401k loan option.

Please contact one of our Solo 401k Experts at 949-228-9394 for more information.

Alternate investment options with your self-directed account:

Real Estate

Precious Metals

Private Business

Stocks & Bonds

Private Lending


Investments That Make Sense!

It’s Your Money. It’s Your Future. Invest Your Way.

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