Example of how the Solo 401k Participant Loan Grace Period Works

Standard Loan Repayment Requirement

• Solo 401k loans must be paid back  monthly for quarterly.

Grace Period

• If a scheduled loan payment is missed, the participant has up to the last day of the following quarter to make that missed payment without defaulting the loan.
• This creates a “grace period” of up to 90 days from the original due date, depending on when the missed payment occurred in the quarter.

Example:

• Suppose a participant has monthly payments due by the 2nd of each month.
• If the November 2, 2025  payment is missed, the participant can still make it up by January 31, 2026 (the end of the first quarter) without the loan being considered in default.

Applies Separately to Each Payment

• Each payment gets its own grace window.
• Missing one payment doesn’t invalidate the entire loan as long as that missed payment is caught up before the end of its grace period.

 What Happens If Grace Period Is Exceeded?

• If a payment isn’t made within the grace period, the entire outstanding loan balance becomes a deemed distribution.
• This means it would be treated as taxable income, and if the participant is under age 59½, early withdrawal penalties may apply.

Summary

• The Solo 401k loan grace period applies payment-by-payment.
• As long as each missed payment is made up within the applicable grace period, the loan remains in good standing.