Taking a Loan from Your Self-Directed Solo 401(k)

Here’s what you need to know about taking a loan from your Solo 401(k):

How much am I allowed to borrow?

You may borrow up to 50% of the total amount in the Solo 401(k), with a maximum cap of $50,000.

Are there any restrictions on the borrowed funds?

There are no restrictions on the funds. They can be utilized for any purpose.

What is the process for taking out the loan?

Taking out a loan is an easy two-step process:

1. Fill out the two loan forms found in the back of your Solo 401(k) binder (PL-18, PN-19).
2. Write a check from the Solo 401(k) to yourself.

And that’s it! Because you are the designated plan administrator, you don’t need to send or file the forms with anybody else. Just keep them in a safe place and reference as needed.

What’s the duration of the loan?

The loan may be held for up to five years, (or 15 years if the loan is used to purchase a primary residence.)

Do I have to pay interest on the loan?

Yes. However, the interest rate itself is not fixed. Any commercial viable rate similar to what banks would lend someone in your circumstances can be used. Just keep in mind that the interest being paid is not lost to you. It’s going back into your retirement fund where you will be able to utilize it along with rest of your Solo 401(k).

How do I pay back the loan?

You can pay with a personal check made out to your Solo 401(k). The payments are made quarterly. The amount of each payment will be calculated based on the amount of the initial loan, the duration of the loan, and the interest rate. See our Solo 401k loan calculator which can help you find out the amount of the quarterly payments.

Can I take out more than one loan?

Yes. However, the total loan amount may never exceed the 50% or $50,000 cap.

Can I take out a $50,000 loan from my Solo 401(k) and pay it off and then take another $50,000 loan?

You can borrow again, up to $50,000, minus the highest loan balance in the past 12 months.