QUESTION:
I have an outstanding loan with the current 401k. Can it be transferred as well to the self-directed solo 401k, or does it need to be paid off ?
ANSWER:
Yes, if the participant loan in your former employer’s 401k plan is in good order and the former employer allows you to transfer it. However, former employer’s generally won’t allow you to transfer-out the existing participant loan; therefore, you will need to ultimately check with your former employer’s 401k plan administrator. You will want to communicate to them that you now have a solo 401k plan for your self-employed business which accepts the transfer of the outstanding 401k loan to the solo 401k plan. If they say yes, then the transfer of the participant loan will be requested when completing the transfer forms.
On the other hand, if they say no, then you may want to consider asking them to process the loan as a “loan offset” which is a way of ultimately indirectly transferring the loan to the new plan. For more on these specific loan offset rules, please see the following page: https://www.mysolo401k.
