Can I Take Out a Loan From a Solo 401k?

Yes. Assuming your solo 401k has a loan provision in the plan document, this is allowable. The loan is not a taxable distribution to the employee as long as it meets the following criteria:

  • You can borrow up to 50% of your account balance, subject to a maximum amount of $50,000. The loan is subject to repayment within a 5 year period, unless it is used for a primary residence. Loan repayments must be made in even payments, at least on a quarterly basis, over the loan term.
  • The $50,000 amount is reduced if you already had an outstanding loan from the plan during the 1 year period just prior to the loan. The amount that is reduced is the highest loan balance during the loan period less the outstanding balance on the date of the new loan.

The loan should be evidenced by a formal loan agreement. In addition, the funds can be used for any purpose. The loan is not an actual debt instrument that is issued by a bank or other financial institution. The participant is merely just borrowing against their own money in the 401k.

If your plan document allows loans, you can also borrow against the amount that is in the designated Roth portion. This would also include rollovers into the account as an in-plan Roth rollover.

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Emparion, LLC does not provide legal, investment or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact financial results. Emparion cannot guarantee that the information herein is accurate, complete, or timely. Emparion makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Please consult an attorney or tax professional regarding your specific situation.