Does Schwab Allow 401k Loans?
Watch: Why Schwab’s basic plan blocks 401k participant loans — and how solopreneurs unlock them while keeping their accounts at Schwab
Quick Answer:
No. Schwab’s own basic Solo 401k plan document does not allow 401k participant loans. Like virtually every discount brokerage, Schwab has made the business decision not to offer loans under its in-house plan. The good news: Schwab will open accounts for solopreneurs who bring their own plan documents. By restating (upgrading) to a fully featured plan from My Solo 401k Financial, you can take a Solo 401k participant loan of up to 50% of your balance (not to exceed $50,000) while keeping your cash and investments right where they are — at Schwab.
Who Is Eligible for a Solo 401k?
Before we get to loans, let’s lay the foundation. To be eligible for a Solo 401k, you must satisfy two simple requirements.
Requirement 1: Earned Self-Employment Income
You need to be self-employed, and you demonstrate that by reporting earned self-employment income on your tax return. Your business does not have to be taxed in any particular manner — you don’t even need a formal legal entity.
Requirement 2: No Non-Owner, Non-Spouse Full-Time W-2 Employees
You cannot have non-owner, non-spouse full-time W-2 employees working for any business owned by you or your spouse.
Example: You run a marketing consultancy and use three 1099-NEC independent contractors. Because those individuals are not full-time W-2 employees, they do not prevent you from having a Solo 401k. Your spouse can also work in the business and participate in the plan.
Why Schwab’s Basic Solo 401k Plan Blocks 401k Loans
When you open a basic Solo 401k at Schwab, two things are true: (1) you are using Schwab’s plan documents to create the 401k plan, and (2) the account is held at Schwab.
A Solo 401k, like any 401k, is a legal entity. As with any legal entity, it’s the documents that create it — and it’s the documents that dictate what you can do with it. Schwab, like virtually all other discount brokerages, has made the business decision not to offer a Solo 401k plan that permits 401k participant loans.
Important: If you open the basic plan at Schwab, you are limited to Schwab’s documents. That means no Solo 401k participant loans, no ability to make Mega Backdoor Roth contributions, no ability to invest in alternative investments such as real estate or crypto, and no ability for the solopreneur to claim the available tax credits.
Feature Comparison: Schwab’s Basic Plan vs. a Restated My Solo 401k Financial Plan
The Solution: Bring Your Own Plan Documents to Schwab
Schwab — like the other discount brokerages our clients use — will open accounts for people who bring their own plan documents. If you already started with the basic Solo 401k plan at Schwab, you can restate (upgrade) your plan to our plan documents.
My Solo 401k Financial offers a fully featured 401k plan, but we do not hold or have access to our customers’ funds. Our IRS-approved plan documents allow for Solo 401k participant loans, Mega Backdoor Roth Solo 401k contributions, and alternative investments — while your accounts and investments stay at Schwab.
What Are Schwab Company Retirement Accounts (CRA Accounts)?
From Schwab’s perspective, the accounts you opened using their basic plan documents are governed by their plan. Once you have your own plan documents, Schwab needs to know that — so new accounts must be established. Schwab offers what it calls a Company Retirement Account (CRA) for third-party plans.
- CRA accounts are essentially brokerage accounts for the restated plan.
- Schwab charges nothing to open them and there is no maintenance fee.
- Investment options are the same as any other retirement account — stocks, bonds, mutual funds, and more.
- Schwab will even provide a free checkbook on those accounts.
- As part of onboarding, My Solo 401k Financial pre-fills the paperwork Schwab requires to open the CRA accounts.
Info Highlight — The Transfer Is Not Taxable: Moving cash and assets from your pre-existing Schwab Solo 401k accounts to the corresponding new CRA accounts (pre-tax to pre-tax, Roth to Roth, and so on) is not reportable and not taxable. The funds never leave the Solo 401k — they simply move to new accounts for the same, but restated, plan.
The Dual-Entity Structure: Separating the Plan Provider from the Account Provider
The result is a clean separation of roles. You keep your accounts at Schwab, but the plan itself is provided by a third party — My Solo 401k Financial. We don’t hold or have access to customer funds. We focus on providing the fully featured plan document plus ongoing educational and compliance support, while giving you the freedom to hold accounts at the bank or brokerage of your choice.
What Upgrading Your Schwab Solo 401k Unlocks
- Solo 401k participant loans — up to 50% of the plan value, not to exceed $50,000.
- Alternative investments — real estate, crypto, private notes, and more.
- Mega Backdoor Roth — voluntary after-tax contributions that can be converted to a Roth Solo 401k or a Roth IRA.
- $1,500 in Solo 401k tax credits — $500 per year for three consecutive years under the SECURE Act.
- Form 5500-EZ filing support — prepared and e-filed by us at no additional fee (as long as we are timely notified)
Example — The Tax Credits Outrun the Fees: Our fee structure is a flat $650 initial cost and $125 per year beginning 12 months later. It is totally flat — it does not increase as the value of the plan grows. Over the first seven years that totals less than the $1,500 in Solo 401k tax credits available under the SECURE Act, so the credits more than cover our fees for those first seven years.
Form 5500-EZ: The $250,000 Threshold
Once the value of your Solo 401k exceeds $250,000, the Form 5500-EZ filing requirement applies. When measuring that threshold, aggregate all plan accounts — multiple participants (such as a husband and wife), and different money types (pre-tax and Roth) — and include the value of any defined benefit plan you may have.
Important: Schwab does not handle Form 5500-EZ for its Solo 401k customers — it will direct you to your tax advisor. My Solo 401k Financial handles the Form 5500-EZ at no additional fee. Because we don’t have access to your accounts, clients and their advisors simply need to notify us once the value exceeds $250,000 so we can add them to the process, gather the financial information needed, and e-file through the EFAST system.
How to Fund and Take Your Solo 401k Loan at Schwab
Solo 401k Participant Loan Rules at a Glance
You may use the proceeds of a Solo 401k participant loan for any purpose — business or personal. The loan is not subject to taxes or penalties provided it is properly documented as a loan and stays within the required terms.
Example — Calculating the Maximum Loan:
You have $60,000 in your pre-tax Solo 401k account and $40,000 in your Roth Solo 401k account — $100,000 in total plan value. Because the 50% test looks at the entire value of the plan, you could take a $50,000 loan, draw the full amount from the pre-tax account, and then repay it to that same pre-tax account.
Info Highlight — Using the CD Rate Option: If you use the CD-rate method for a $50,000 loan, look for comparable $50,000 CD rates with a five-year term (checking a couple and averaging is a reasonable approach), provide us that rate, and we add the 2% when drafting the loan documents.
Ready to Unlock 401k Loans While Keeping Your Accounts at Schwab?
Whether you’re restating an existing Schwab Solo 401k or starting fresh, My Solo 401k Financial can set up the right Solo 401k structure so you can take participant loans, make Mega Backdoor Roth contributions, and invest in alternatives — with your accounts still at Schwab.
Next Steps: Get Started Today! Ten simple questions — and we prepare your documents within the same business day. You can also join our free community at mysolo401k.net/my-community or subscribe to our channels for daily live sessions.
