IRS Announces Higher Expectations for Solo 401k Loans

On September 4, 2014 a couple of members of the Voluntary Compliance Group of the Internal Revenue Service (IRS) provided a webinar regarding correcting common retirement plan mistakes using the IRS correction programs.

One of the common mistakes discussed was participant loans taken by owner-employees which would include Solo 401k loans taken by the owner-employee participant. While the speakers confirmed that such loans may be eligible for relief under an IRS correction program, they did indicate that additional information would be requested with respect to such a loan where correction relief is sought. Such information might include the following:

  • Was the loan a bona fide loan?
  • Were there reasonable attempts to make payments?
  • How long did the problem persist?
  • Why did the problem occur?

The speakers indicated that more detailed information would be requested with respect to an owner-employee loan because the owner-employee also typically serves as the administrator of the plan.

Key Takeaways:

  • Owner-employee loans (e.g., Solo 401k loans) are likely to be subject to a higher level of expectation and scrutiny by the IRS.
  • As such, it is very important to select a Solo 401k provider that is well-versed in the applicable rules and can provide compliance support for the ongoing maintenance of the plan including Solo 401k loans.
  • To learn more about the requirements applicable to Solo 401k loans, please click here.


SOLO 401(K)