Solo 401k Loan Limits: How Much Can You Borrow Based on Plan Assets?

Many self-employed business owners reach a point where they need quick access to capital. Whether it’s to cover a temporary cash shortfall, make a down payment on a home, or consolidate high-interest debt, tapping into a Solo 401k loan can be an attractive option.

But how much can you actually borrow? That’s where Solo 401k loan limits come into play.

Understanding Solo 401k loan limits is essential before borrowing. You need to know exactly how loan amounts are calculated, what counts as eligible assets, and which rules the IRS enforces to keep your retirement account in good standing.

This article covers all of that, and more, so you can make informed decisions without triggering unexpected taxes or penalties.

What Is a Solo 401k Loan?

A Solo 401k loan is not a distribution. It’s a short-term loan from your own retirement account that must be paid back with interest. Because it’s technically not income, there are no taxes or penalties as long as you follow the rules.

Here are the key limits:

• You can borrow up to $50,000, or
• 50% of your total Solo 401k plan value, whichever is less.

Repayment terms:

• 5 years for general-purpose loans (like paying off debt or covering business expenses).
• Up to 15 years if the loan is used to purchase a primary residence.

The loan must be repaid in equal payments, usually monthly or quarterly. And you pay the interest back to your own account. The interest rate is typically set at the Prime Rate plus 1–2%, depending on your plan provider.

What Actually Counts Toward the Loan Limit?

To calculate Solo 401k loan limits, you must first understand what counts as a “plan asset.” This includes more than just the cash sitting in your account.

Here’s what qualifies:

• Cash or cash equivalents (checking or brokerage sweep accounts)
• Gold and precious metals held by the plan
• Real estate held directly by the Solo 401k
• Private equity or private company shares
• Notes and other alternative investments like tax liens or bridge loans

The total fair market value of all these assets determines your plan’s value on the day the loan is issued.

Important: While real estate and gold count toward your total plan value, you can’t use them directly as collateral or borrow against them in a traditional sense. The loan must be drawn from liquid assets like cash. That’s why even if you qualify to borrow $50,000 based on your plan value, you’ll need to ensure your account has enough liquid assets to fund the loan.

All valuations should be well-documented. If your plan holds non-traditional assets (like real estate or promissory notes), you’ll need to get appraisals or clear evidence of market value to remain compliant.

How the 50% Rule Really Works

Here’s the core rule behind Solo 401k loan limits: You can borrow up to 50% of your plan’s total value, not to exceed $50,000.

Let’s break it down with a few examples:

• Plan value: $80,000 → Max loan = $40,000
• Plan value: $180,000 → Max loan = $50,000 (even though 50% is $90,000)
• Plan value: $90,000, but only $30,000 in cash → Max loan still = $45,000, but only $30,000 is available unless you liquidate other assets

Key facts to remember:

• The 50% rule is based on total plan value, including all eligible assets.
• You cannot exceed $50,000 under any circumstances, even if 50% of your plan is worth more.
• You can only have one outstanding loan at a time from your Solo 401k.
• Your loan amount is determined based on your plan’s value on the day the loan is issued, not when you request it.

If your plan holds mostly illiquid assets, you may have to sell or convert something into cash to access the full loan amount you’re entitled to under the 50% rule.

Liquid vs. Illiquid Assets

A common misconception is that you can borrow against your Solo 401k’s real estate or precious metals like you would with a mortgage or home equity loan. That’s not how Solo 401k loans work.

Yes, assets like real estate and gold do count toward your total plan value when calculating Solo 401k loan limits. But you cannot use them directly to fund the loan. All loan proceeds must come from cash or cash-equivalent holdings in the plan.

That means if your plan is worth $150,000 but most of it is tied up in a rental property, you may qualify for a $50,000 loan on paper. But you can’t actually access it unless you sell or liquidate something first.

If you’re looking to borrow the full amount you’re eligible for, you’ll need to ensure your Solo 401k holds enough available cash to fund it. This might involve:

• Selling stocks or mutual funds within the plan
• Liquidating precious metals or alternative investments
• Moving incoming contributions into cash positions

How Solo 401k Loan Limits Apply in Real Life

Understanding Solo 401k loan limits in theory is helpful, but seeing how they play out in real situations makes the rules much easier to apply.

When There’s Enough Cash to Cover the Loan

• Example: $60,000 in cash + $40,000 in gold = $100,000 total plan value
• Loan limit: $50,000 (50% of plan value, capped at $50K)
• Available to borrow: $50,000 (because there’s enough cash to fund it)

Even though the loan isn’t backed by the gold, it helps you qualify for the full limit. Having enough liquidity is the key to actually getting the funds.

High Plan Value, Low Cash

• Example: $200,000 total in plan assets, but only $10,000 in cash
• Loan limit: $50,000
• Available to borrow: Only $10,000, unless you liquidate assets

You qualify for the full loan, but can’t access it unless you sell or reposition plan assets to create liquidity. This is a common issue for plans heavy in real estate or private equity.

Most Assets Are Illiquid

• Example: $90,000 plan value, including $70,000 in real estate and $20,000 in cash
• Loan limit: $45,000
• Available to borrow: Up to $20,000, based on the cash available

Even though the numbers suggest you’re eligible for more, the actual loan is limited by how much liquid capital your plan has ready to go. Illiquid holdings like real estate can’t be partially borrowed against.

How to Prepare for a Solo 401k Loan

Taking a loan from your Solo 401k isn’t just about crunching numbers. There are specific steps to follow to ensure it’s done properly, legally, and in a way that benefits your overall financial strategy.

1. Get a full valuation of your plan assets

Include all cash, investments, metals, property, and alternative holdings. You’ll need fair market values to determine your loan eligibility.

2. Verify available liquidity

Your plan needs enough cash to fund the loan amount you want. Double-check how much is actually available in liquid form.

3. Review your plan’s loan provision

Not all Solo 401k plans are set up to allow loans. If yours isn’t, you may need to amend the plan documents or work with a provider that includes this feature.

4. Set your repayment schedule and interest rate

IRS guidelines require equal payments (at least quarterly), and the interest rate must be reasonable—usually Prime + 1–2%.

5. Document everything

Record the loan terms in writing. Keep copies of amortization schedules, payment receipts, and bank transfers. You’re borrowing from your own retirement account. But the IRS still expects it to look and act like a formal loan.

IRS Compliance and Loan Pitfalls to Avoid

Solo 401k loans are flexible, but they come with strict rules. Failing to follow those rules can result in unexpected taxes, penalties, and even disqualification of your retirement plan.

Here are the most common mistakes to avoid:

Missing payments

If you don’t make regular payments (at least quarterly), the loan will be treated as a deemed distribution. That means the IRS treats it as if you withdrew the money permanently. You’ll owe income tax on the entire unpaid balance, plus a 10% early withdrawal penalty if you’re under 59½.

Exceeding Solo 401k loan limits

The most you can borrow is the lesser of 50% of your total plan value or $50,000. Going over that, intentionally or by accident, turns the entire excess amount into a taxable event.

Using plan assets as collateral

You’re not allowed to use real estate, metals, or other plan assets as collateral outside of the plan. The loan must come from your Solo 401k’s cash, and there’s no “backing” it with property held inside the account.

Skipping documentation

Every loan must be properly recorded. That includes a written loan agreement, amortization schedule, and proof of payments. Without clear records, the IRS may flag the transaction as a distribution, even if you’re repaying it.

Following IRS rules and keeping good records is the easiest way to protect your Solo 401k and avoid costly surprises.

Loan vs. Distribution

Before tapping your retirement funds, ask yourself a key question: Is a Solo 401k loan the best solution, or would a distribution be more appropriate (or more dangerous)?

Loans: Temporary Access, Tax-Free if Repaid

• You borrow from your plan and repay it with interest.
• No income tax or penalty if paid back on schedule.
• Acts like a short-term line of credit.

Loans are best used when you need cash temporarily—like for a short-term opportunity, down payment, or working capital gap.

Distributions: Permanent, Often Costly

• You take the money out permanently.
• You owe income tax on the full amount.
• A 10% early withdrawal penalty applies if you’re under 59½.

Distributions reduce your retirement balance forever and create a larger tax burden in the year you take them. They should be a last resort.

When to Avoid a Loan

• Your income is unstable, making repayment uncertain.
• Your investments are down—selling assets to create cash could lock in losses.
• You need more than $50,000 (the legal limit for Solo 401k loans).

In short, a Solo 401k loan can be a powerful financial tool. But it’s not meant to be a long-term funding solution. Use it strategically, and always with a plan to repay.

Using the Loan Feature Responsibly

The ability to borrow from your retirement account can be a game-changer, especially if you understand how Solo 401k loan limits work and plan accordingly.

Here’s what to remember:

• The maximum you can borrow is 50% of your total Solo 401k value, up to $50,000.
• That value includes real estate, metals, and private investments, but loans must come from cash.
• If most of your assets are illiquid, you may need to rebalance before taking a loan.
• Every loan needs clear documentation and a strict repayment schedule.

Solo 401k loans offer flexibility, but only for those who follow the rules.

If you’re considering a Solo 401k loan, it’s worth speaking with a qualified plan provider or tax advisor who understands how the rules apply to your situation. A little guidance now can save you thousands later.