Here’s what to do next:
Congratulations on utilizing one of the most powerful tools in your Solo 401k…your participant loan instant line of credit.
Next, open the participant loan documents you just downloaded, and:
- Sign and date each page where applicable
- Write the check from your Solo 401k bank account to the borrower
Participant Loan FAQs
Do you have questions about your Solo 401k and the participant loan? Check out our client Knowledge Base!
Quick facts about the Solo 401k Participant Loan:
- You have up to five years to pay back your participant loan
- Your loan amount can be 50% of your account value, up to $50,000 maximum
- Example: If you have $40,000 in your Solo 401k, your maximum loan amount is $20,000
- Example: If you have $500,000 in your Solo 401k, your maximum loan amount is $50,000
- The account value is your total vested balance. So, if you have $100,000 invested in real estate and $60,000 liquid – your total vested balance is $160,000. Therefore, you would be able to take $50,000 in a participant loan. (50% of $160k is $80k…$50,000 is less than $80k so the loan can be $50,000).
- The loan check must be payable to you as the participant. You cannot make the loan check out to anyone else (your business, your friend, etc)
- You are able to invest the rest of the cash not included in the loan. For example, if you have $100,000 cash in the Solo 401k, you can take a loan of up to $50,000. You are then able to invest the remaining $50,000, even after you have taken out the first $50,000 in the loan to yourself as the participant
- You and your spouse can each take a participant loan from the Solo 401k.
- The amount you and your spouse can each take out in a loan is directly related to the amounts each of you have rolled in and/or contributed to the Solo 401k.
- Example: If you rolled in $80,000 you can take a loan of $40,000. If your spouse rolled in $200,000, they can take a loan of up to $50,000
- The interest rate on a participant loan is fixed at the prime rate plus 1%
- Loan repayments should be made by you (the participant) directly back into your 401k bank or brokerage account (wherever you have the depository account for your 401k trust funds)
- It is possible to have more than one loan at a time, so long as the maximum loan amount per plan participant does not exceed 50% of the account value, maxing out at $50,000
- Please check out the following articles from the IRS about taking a loan from a qualified plan, such as the Solo 401k:
Retirement Plans FAQs regarding Loans
Retirement Topics – Plan Loans
