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Solo 401k Loans

What are the advantages of the Solo 401k versus other self employed retirement plans?

An advantage of a Solo 401k versus other self employed retirement plans such as a SEP-IRA or Keogh retirement plan is the ability to receive a loan using the accumulated balance of the Solo 401k as collateral. Provided a Solo 401k has a loan provision, tax free solo 401k loans are permitted up to a maximum of $50,000. Solo 401k loans must be repaid according to the terms of the loan amortization schedule and generally have a 5 year maximum repayment term. Loans used for a primary residence may have a repayment term of 10-15 years. Failure to repay the loan according to the loan amortization schedule will result in a loan default. Loan defaults will cause federal and state taxes as well as IRS penalties.

Solo 401k loans are permitted up to 1/2 of the total value of the Solo 401k up to a maximum of $50,000. Principal and interest is repaid back to yourself into your Solo 401k (not to a bank).

A Solo 401k loan can be provided tax free, penalty free and without credit checks or income qualifications and the money can be used for any purpose. The simplicity and ease of a Solo 401k loan is a key benefit and may be considered a valuable feature for many self employed business owners.

Securing a Solo 401k loan is a simple 3 step process

  1. Setup a Solo 401k - You are permitted to setup a 401k provided you are self employed and provided you have no W-2 employees (other than a spouse) who work more than 1,000 hours per year. You are eligible to establish a 401k for a side business even if you participate in a 401k, 403b or 457 plan through your primary employer. Sole proprietorships, S and C corporations, partnerships and LLCs qualify.
  2. Rollovers and Transfers - You can rollover your 401k, 403b, 457 retirement plan from a previous employer. You can transfer a Rollover IRA, Traditional IRA, SEP IRA, Keogh etc. into your Solo 401k. By consolidating your existing retirement accounts into a Solo 401k you build the 401k's balance quickly and then can use its value as collateral to receive a larger loan.
  3. Submit Loan Request Form - Once the retirement assets have been rolled over or transferred into your 401k for 8 business days, you are immediately eligible for a loan. Using your 401k's balance as collateral you can borrow up to 1/2 of the total value of your 401k up to a $50,000 maximum.

Learn more about the advantages of a Solo 401k.

 

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Beacon Capital Management Advisors (BCM) is experienced in setting up retirement plans for our clients. BCM provides retirement plans to the self employed, freelancers, entrepreneurs, independent contractors and small business owners and is registered in 50 States. Complete the form below and a BCM Advisor will promptly respond to your inquiry.

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Disclosures:

*The information on this page is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

*Information contained in these sections merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.