Borrowing Against 401k | Can you pledge 401k as collateral?

Borrowing Against 401k Question:

My Solo 401k funds are in a brokerage account at Fidelity.  This is a great option for me as I have a strong comfort level with Fidelity as I have had a brokerage account there for years.  On occasion, I will tap a line of a credit secured by my brokerage account.  This is a great option for me because I can access extra cash quickly without having to liquidate my investment portfolio.  Can I borrow against my Fidelity Solo 401k brokerage account?

Borrowing Against 401k Answer:

While securities based lines of credit (SBLOCs) may be an easy way to access extra cash, it is important to recognize that the IRS rules don’t allow you to pledge your 401k assets as collateral for a personal loan.

Instead of using a 401(k) account as collateral, you can borrow the money that you need from the 401(k) account if the Solo 401k plan documents allow for 401k participant loans.

The maximum amount that the plan can permit as a loan is (1) the greater of $10,000 or 50% of your vested account balance, or (2) $50,000, whichever is less.

For example, if your Solo 401k brokerage account at Fidelity has an account balance of $40,000, the maximum amount that you can borrow from the account is $20,000.  There are important technical requirements that apply to Solo 401k participant loans including specific documentation & repayment requirements.  Therefore, don’t just take the funds out of your Fidelity brokerage account but be sure to coordinate the loan with your Solo 401k plan provider in advance.

For more on the Solo 401k loan requirements, click HERE.

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About George Blower

I have the privilege of educating our clients about our products and services so that they can make informed and confident decisions about their financial future. Prior to joining My Solo 401k Financial, I served as the general counsel for a subsidiary of a Fortune 500 financial services company. Learn more about George Blower and My Solo 401k Financial >>

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