Securing Personal Loan Using Solo 401k Funds Vs Non-Recourse Loan to Solo 401k


I have a solo 401k trust and want to know about leveraging my solo 401k funds for  equity lines of credit; and reverse mortgages.

Do yo also have recommendations for banks who are familiar with these type of transactions should he proceed with any of the above transactions through one of the options referenced above.


The solo 401k rules allow for non-recourse loans to a solo 401k for investing in real estate through the solo 401k. For the non-recourse loan rules, see the following.

For a list of banks that will loan to a solo 401k plan, see the following.
On another note, the 401(k) regulations do not allow the solo 401(k) owner to use any of his or her solo 401(k) assets for securing a loan to the solo 401k owner. Such a transaction is considered a prohibited transaction. For more information on the prohibited transaction rules, see the following.

Individual 401k | Solo 401k | Pooling Retirement Funds for Real Estate Investment

Question regarding Individual 401k/Solo 401k Real Estate Investment Rules 

My wife & I are freelance graphic designers in Phoenix, Arizona & seeking to open a Solo 401k.  Our goal with the 401k is to buy real estate rental properties.  I understand that my wife and I would each have separate accounts under our Solo 401k plan.  Can we still pool the funds for the purchase of a single property in the name of the single 401k trust?

Answer regarding Individual 401k/Solo 401k Real Estate Investment Rules 

Yes – you can pool funds from both the 401k account for your benefit as well as the 401k account for your wife’s benefit.  Please note that the funds to purchase the real estate should come from both accounts (e.g. two wire transfers to the title or escrow company).  The property would be titled in the name of the Solo 401k.  Going forward, the ongoing income and expenses can be received & paid through one account for administrative convenience.  Please note that the income and expenses related to the investments need to be  401k sub-accounts need be reconciled between the two Solo 401k sub-accounts (in accordance with the same ratio of the funds initially used for the purchase) on at least on an annual basis and certainly before any distributions are taken.

Compare SEP IRA vs. Solo 401k – Advantages of a Solo 401k

We often hear from small business owners who are comparing a SEP IRA vs. Solo 401k.  For those who qualify for the Solo 401k, they will almost always find that a Solo 401k has certain features that make it the better option.  This post highlights several key advantages of a Solo 401k vs. SEP IRA.

SEP IRA vs. Solo 401k – Advantages of a Solo 401k

You can contribute more to a Solo 401k vs. SEP IRA 

Solo 401k allows for higher annual contribution limits than a SEP IRA. The reason for this is that a Solo 401k allows for both employee (salary deferral) & employer (profit sharing) contributions whereas only profit sharing contributions can be made to a Solo 401k.  To illustrate this point consider the following scenario: Karen is 54 years old & is the sole owner of an S Corporation with no full-time employees that provides accounting services.  If she earns $100,000 in self-employment W-2 wages for 2017, she will be able to contribute $49,000 for 2017 which consists of a $24,000 employee deferral and a $25,000 profit sharing contribution.  On the other hand, if Karen established a SEP IRA, she would only be able to contribute $25,000 for 2017.  Visit Solo 401k contributions to learn more.

Solo 401k allows for Roth Contributions

For 2017 the self-employed business owner may make up to $24,000 in Roth contributions to a Solo 401k. Specifically, $18,000 if under age 50 and an additional $6,000 if age 50 or older. A SEP IRA does not allow for Roth Contributions. Visit Roth Solo 401k to learn more.

Solo 401k allows for Participant Loan (borrow from Solo 401k)

If you qualify for a Solo 401k, you may take a loan from your Solo 401k without having to pay distribution taxes or penalties. The maximum Solo 401k Loan amount is 50% of the participant’s solo 401k balance not to exceed $50,000.  Like all types of IRA accounts, the IRS rules do not permit loans to be taken from a SEP IRA.  Visit Solo 401k Loan to learn more.

You can serve as Trustee of your own Solo 401k

The rules permit the business owner to Trustee his or her Solo 401k assets, meaning that you don’t have to use the services of a custodian to hold/safe keep the Solo 401k investments.  As a result, holding and investment processing fees are greatly reduced or completely eliminated, and processing times greatly reduced since you don’t have to submit investment processing directions to the custodian. Conversely, a SEP IRA requires an IRA provider to maintain the paperwork and bookkeeping of the SEP IRA account.

Solo 401k may not be subject to annual reporting

A SEP IRA is subject to annual reporting (Form 5498) regardless of account value, whereas a Solo 401k may not be subject to annual reporting.  Solo 401k only requires filing of Form 5500 EZ once the total account value exceeds $250,000 and when you terminate the Solo 401k.  Visit Solo 401k Annual Reporting to learn more.


Sole Proprietor Plan Establishment Deadline for Self-Employed Plans – Solo 401k, SEP IRA and SIMPLE IRA

There are different types of plans available for sole proprietors and each have different plan establishment deadlines.  Plan establishment is completed when the sole proprietor has signed all of the required opening documents appropriate for that type of plan.

Defined Contribution Plan: Solo 401k Plan (also known as an Individual 401k)

A solo 401k plan is a type of qualified plan, and it is subject to the same deadline as the profit sharing plans. Because the establishment deadline is the last day of the business’ tax year, a business that files its taxes based on a 12-month period other than a calendar year may have a deadline other than December 31. For example, a business with a noncalendar tax year that runs from July 1 to June 30 would have a 2017 tax year that runs from July 1, 2017, until June 30, 2018. The last day that the solo 401k plan could be established for 2017–2018 will be June 30, 2018. The deadline for making an employer or employee contribution is the business’ tax return due date including extensions.

Simplified Employee Pension (SEP) Plan

A SEP plan affords the sole proprietor the most time to wait to make a decision (or to procrastinate) about opening a retirement pan.  For instance, the sole proprietor can wait to establish the SEP plan by his tax return due date, including any extensions to file, for the tax year for which he wishes to make a contribution.  Therefore, if we are talking about the date of this blog post, a sole proprietor of a nonincorporated business maintained on a calendar tax year will have until April 15, 2017, to establish a SEP plan for 2016. This gives the sole proprietor plenty of time after the end of the year to huddle up with his tax prepare to ascertain if opening a retirement plan makes sense from a contribution perspective. The SEP contribution deadline is the same as the SEP plan establishment deadline.

Savings Incentive Match Plan for Small Employers (SIMPLE IRA)

To establish a SIMPLE IRA plan, the sole proprietor generally must adopt a SIMPLE IRA plan document effective on any date between January 1 and October 1. This requirement does not apply to a new business that comes into existence after October 1 of the year that the SIMPLE is established if the sole proprietor establishes the SIMPLE as soon as administratively possible after the business comes into existence.

This quirky deadline regulation was promulgated to ensure that an employee has sufficient time in the initial plan year to make adequate salary deferrals. Deferrals must be made prospectively. The deadline for making the employer match/nonelective contribution is the business’ tax return due date including extensions.

Solo 401k Common Distribution Triggers

Solo 401k providers and solo 401k owners often don’t understand that the same distribution rules that apply to full-time employer plans (i.e., those plans with full-time employees besides the business owner(s)) also apply to solo 401k plans. However, that is simply not correct.  Some solo 401k owners will ask the solo 401k provider to assist in reporting a distribution from the solo 401k plan whenever the solo 401k owner wants the money. “It’s my business, my plan, and my savings,” may say the solo 401k owner. Yes it is your money, but you are a participant in the plan; the business (e.g., the sole proprietorship, S-Corp, LLC or LP) is the owner (sponsor) of the solo 401k plan. As a result, in order for the solo 401k plan to receive the tax-favored status, the solo 401k plan is required to meet certain IRS and Department of Labor requirements. A triggering event is required before solo 401k distributions can commence.

Following are some of the common solo 401k distribution triggers:

Funds or Assets Transferred from IRAs or Former Employer Plans to the Solo 401k Plan– The solo 401k participant can distribute any funds that have been transferred to the solo 401k plan from IRAs (e.g., traditional IRAs, SIMPLE IRAs and SEP IRAs) or former employer plans such as a 401k, 403b, 457b or TSP to name a few.

Attainment of Normal Retirement Age – The solo 401k plan documents may specify an age as the “normal retirement age” for purposes of plan operation (generally between age 591⁄2 and 65). If a plan permits, a participant (the solo business owner) who attains normal retirement age may elect to begin receiving distributions from the plan.

Death – upon the death of the solo 401k owner, the beneficiary can start processing distributions form the solo 401k plan.   Remember that a plan participant must generally name her spouse as the beneficiary unless the spouse has consented in writing to the naming of another beneficiary.

Disability – A solo 401k plan permits the participant to begin receiving distributions from the plan should she become disabled.

Plan Termination – The solo 401k plan documents will allow a participant to request a distribution from the plan if the plan is closed (i.e., the self-employed business shuts down).

Additional Types of Distributions – A solo 401k allows for in-service distributions of profit sharing and salary deferrals employee contributions provide the following requirements are met:

Employer/Profit Sharing contributions can be distributed from the solo 401k plan once accumulated in the solo 401k plan for at least 2 years; or the participant has participated in the solo 401k plan for at least 5 years.

An alternative way to access solo 401k funds is to borrow from the solo 401k plan. Effective for plan years beginning on or after January 1, 2002,  solo 401k participants may take loans from their solo 401k plans.  To learn more about the solo 401k distribution rules, VISIT HERE.

Employer-Sponsored Plan Participant Rollovers to a Solo 401k Plan

The rule of thumb is that if you are eligible to receive a distribution from your employer’s plan (current or former employer), then you can generally roll those assets from an employer sponsor plan to a solo 401k plan. Types of eligible employer plans are profit sharing and 401k plans, 403b and 457b government plans. Also, TSPs plans can be transferred to a solo 401k plan.  The process of completing rollovers from these types of plans vary on how you choose to move them.

Interesting enough, the IRS does not provide forms for moving retirement plans to a solo 401k plan. However, the financial organization administering the employer plan that you want to move to a solo 401k plan will generally provide the rollover forms since they are the ones holding the assets.

Moving Assets

As outlined in IRC Sec. 402(f) notice, assets can be transferred from an employer plan either by a direct rollover or an indirect rollover. This notice covers the rules for distributions from plans.

Direct Rollover

If a participant in an employer-sponsored plan is entitled to an eligible rollover distribution from that plan, the participant may choose to have those assets directly rolled over to a solo 401k plan.  Even though the assets move directly from plan to plan (i.e., solo 401k plan), this will result in reporting to the IRS. The check, mailed or hand-carried, is typically made payable to the receiving solo 401k plan (e.g., if the solo 401k plan name is The Verve Solo 401k Plan, the check is mad payable in this name), although the rollover also may be completed through a wire transfer. The participant does not have constructive receipt of the assets (i.e., the check is not made payable to the individual); therefore, the 60-day rule will not apply to this transaction.

While it is standard procedure in the industry, but not an IRS requirement that a direct rollover be processed using a written request, either the releasing plan or the solo 401k provider will provide the written transfer request.

Indirect Rollover

When the rollover distribution is made payable in the name of the participant he only receives 80% of those assets and only has a certain amount of time to move those assets to a solo 401k plan. Consequently, a participant who takes a distribution and later realizes the tax implications of retaining the assets may still have time to complete a rollover transaction and avoid taxation. Because the plan participant actually takes possession of the assets (e.g., the check), the 60-day rule will apply.

If a participant chooses to take payment of the assets, any of the assets that are eligible to be rolled over will be subject to 20 percent mandatory withholding. Unfortunately the participant  has no choice to opt out of this 20% withholding requirement. The withheld amount, however, can be made up out-of-pocket at the time the participant chooses to complete a rollover to a solo 401k plan.

Lastly, not all distributions from employer-sponsored plans are eligible to be transferred to a solo 401k plan. These include required minimum distributions (RMDs), part of a series of periodic payments, and hard-ship distributions.


Late 60 Day Rollover

Moving Funds While Still Working

The 20% Rule

Can I Use My Spouse’s Income to Contribute to My Solo 401k Plan?


Can I contributed to my solo 401K if my wife has about 90K/year of salary? If so, what is my maxim contribution?


No as you can only contribute to the solo 401k based on your net self-employment income, not your wife’s self-employment income.
However, you may qualify for a spousal IRA contribution based on her earned income. You can open spousal IRA with Fidelity Investments for example.

Spousal IRAs

“If you file a joint return, you may be able to contribute to an IRA even if you did not have taxable compensation as long as your spouse did. The amount of your combined contributions can’t be more than the taxable compensation reported on your joint return. See the formula in IRS Publication 590-A.”

UBreakIFix Franchise Review | UBreakIFix Franchise Cost | UBreakIFix Franchise Fee | Use Your 401k to Start a UBreakIFix Franchise Business

UBreakIFix Franchise Review

Are you considering opening a UBreakIFix Franchise (Entrepreneur Magazine 2016 Top New Franchise)?  If so, it will be essential to understand the costs & fees and how you will pay for those expenses.  This article highlights some key expenses listed in the 2016 Franchise Disclosure Document.  It also describes how you can fund those expenses using your retirement funds without paying tax or penalties.

UBreakIFix Franchise Cost | UBreakIFix Franchise Fee

According to the 2016 UBreakIFix FDD Franchise Disclosure Document, the cost to start a UBreakIFix Franchise will include the following if you are opening your first single location:

  • Total Investment: The total investment necessary to begin operation of a “UBREAKIFIX” franchise ranges from $44,600 to $197,750, excluding land.
  • Initial Fees: This total investment includes initial fees totaling between $29,000 and $89,200 that must be paid to the franchisor or its affiliates. If you have at least 2 years of prior experience as a manager or assistant manager at a UBreakIFix store, you be able to pay eligible to pay an initial franchise fee of $25,000 and not pay an initial training fee.
  • Veteran Discount: UBreakIFix offers qualified veterans a 20% discount on the initial franchise fee.
  • Financing: Financing may be available if you are an existing franchisee and are opening a second or subsequent  UBREAKIFIX business.

Use Your 401k to Start a UBreakIFix Franchise Business

If you an aspiring entrepreneur looking for financing to open a UBreakIFix franchise, you may want to consider using our 401k Business Financing plan which allows you to invest your retirement funds in your business without paying taxes or penalties.

Benefits of Using Your 401k to Start a Business

  • You can invest all of your retirement funds in the business without paying taxes or penalties. If you were to withdraw the funds from your retirement account, you will have to pay a 10% penalty (if you are under 59 ½) and income tax which often leaves only 60% or less of the amount withdrawn available to fund your business.
  • The funds invested in your business do not have to be paid back to your retirement account (i.e., it is not a loan).   With no repayment obligation, the business is able to keep more of the income in the business which can be very important to a growing startup business. Moreover, by investing your own funds you are able to independently fund your business and retain ownership and control.
  • There is no credit check required to access your retirement funds.
  • The funds are typically available for business financing in approximately 15 business days.
  • Other than Roth IRA accounts, funds in virtually all types of retirement accounts are eligible including 401k, Traditional IRA, pension plans, government plans, etc.

Using Your 401k to Start a Business – Process

Step 1: File Articles of Incorporation with the Secretary of State.

Step 2: Obtain Corporation and 401k employer identification numbers (EIN).

Step 3: Open business bank account for the C-corporation.

Step 4: The C-corporation adopts new 401k plan.

Step 5: Transfer funds from your existing 401k, IRA or other retirement account to the new 401k.

Step 6: Fund the Corporation with the new 401k proceeds.

Using Your 401k to Start a Business – Resources

Sole Proprietor Plans (Solo 401k Plan, SEP IRA and SIMPLE IRA)

The simplest business to form is a sole proprietorship—an unincorporated business entity owned by one person. A sole proprietorship is not registered with the state like an LLC or Corporation, for example. Therefore, the various self-employed plans as generally sponsored in the individual’s name.

While sole proprietorships can have employees, many entities are owner-only businesses. Thankfully there are several retirement plan types that are designed with sole proprietors in mind. Sole proprietors generally require a plan that is cost-effective for a small business, easy to administer, and advantageous from an income tax perspective.

While there are three types (solo 401k, SIMPLE IRA and SEP IRA) of sole proprietor plans, Sole proprietors typically establish a solo 401k plan over the others because it is one stop shop. Each type of sole proprietor retirement plan is discussed here.

Solo 401k Plan Also Known as Owner-Only 401k Plan

A sole proprietor with no employees (other than her spouse) has the option of establishing a solo 401k plan (also known as an owner-only 401(k). While owner-only 401(k) plans have been available since the inception of the 401(k) plan, the self-employed saw no reason to open a solo 401k over a SEP IRA or SIMPLE IRA until the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was passed. The new law changed the way deferrals are included in determining the employer’s deductible contribution, resulting in higher contribution amounts. Some of the other benefits of the solo 401k over the other types of self-employed plans include the ability for the business owner to process a solo 401k participant loan from the plan as well as the option to make both Roth designation account contributions as well as after-taxa contributions. To learn more about the solo 401k CLICK HERE.

Simplified Employee Pension (SEP IRA) Plan

SEP plans, like profit sharing plans, allow sole proprietors to contribute a large portion of employer income from taxes each year. One of the main differences between a SEP plan and a solo 401k plan is that SEP contributions are made to the sole proprietor’s Traditional IRA rather than to a plan account. However, the SEP IRA does not allow for employee contributions or Roth contributions or catch-up contributions like the Solo 401k does.

Savings Incentive Match Plan for Employers of Small Employers (SIMPLE IRA) Plan

SIMPLE IRA is another easy retirement plan options for sole proprietors. SIMPLE IRA plans allow the sole proprietor to defer her own income, supplemented by a required match contribution. However, the contributions limits are much less than the solo 401k plan, participant loans are not allowed, and neither Roth contributions nor after-tax contributions are allowed.

Solo 401k Loan Limits

One of the main reasons why the self-employed open a solo 401k plan is to be able to borrow/take a loan from the solo 401k plan.  Therefore, it is important to understand how solo 401k participant loans are calculated.  If a solo 401k loan exceeds the statutory limit, the loan will be deemed a distribution and will be taxable to the participant (who will also be subject to a 10 percent early distribution penalty if under age 59½).

As long as the solo 401k participant loan satisfies the rules found in IRC Sec. 72(p)(2), which lists the amount that may be borrowed and details the payment requirements, the loan will not be considered a taxable distribution.

Under the solo 401k loan policy, the solo 401k participant may generally receive a loan of up to 50 percent of her vested account balances, up to a maximum loan amount of $50,000. The maximum loan amount is calculated differently, however, if a participant already has an outstanding solo 401k plan loan.

ILLUSTRATION: No Outstanding Solo 401k Loan Balance

Ben would like to take a loan from his solo 401k plan, which allows for loans of 50% of his solo 401k account balance, up to$50,000. Because Ben has a balance of $60,000, the maximum amount that he can borrow from the account is $30,000 (50% x $60,000). If Ben had a solo 401k balance greater than $100,000, his solo 401k participant loan would be capped at $50,000 regardless of the 50% calculation.

Maximum Limit for Multiple Solo 401k Loans

Provided certain rules are satisfied, the solo 401k participant may have more than one outstanding solo 401k loan from the plan at a time. But any new loan, when added to the solo 401k participant’s outstanding loan balance, cannot exceed the lesser of a) 50 percent of the participant’s vested balance, or b) $50,000 reduced by the difference between

  • the highest outstanding solo 401k loan balance from the plan at any time during the one-year period ending on the day before the new loan is made, and
  • the outstanding loan balance on the date the new loan is made.

ILLUSTRATION: Multiple Solo 401k Loans When Solo 401k Balance is Over $100,000

On January 1, 2016, Beth had a solo 401k plan balance of $125,000 and processed a solo 401k loan amount of $40,000 to be paid in 20 quarterly installments. On January 1, 2017, the outstanding loan balance is $33,322, and Beth decides that she wants to take a second solo 401k loan.

Beth’s second solo 401k loan plus her current outstanding solo 401k loan balance cannot exceed $50,000 reduced by the difference between the highest outstanding loan balance for the preceding one-year period ($40,000) and the outstanding loan balance on the day the new loan is to be made ($33,322).

Step 1: Highest outstanding balance – current outstanding balance = the difference
$40,000 – $33,322 = $6,678

Step 2: $50,000 – the difference = maximum outstanding loan amount
$50,000 – $6,678 = $43,322

Step 3: Maximum outstanding loan amount – current outstanding balance = maximum second loan amount$43,322 – $33,322 = $10,000

The maximum amount Beth can take for her second solo 401k participant loan, therefore, is $10,000.

ILLUSTRATION: Multiple Solo 401k Loans When Solo 401k Balance is Under $100,000

Tim processed a solo 401k loan from his solo 401k plan in 2016. One year later, Tim needs more money so he decides to borrow a second time from his solo 401k. Tim’s highest outstanding loan balance is $32,500, his current outstanding loan balance is $29,000, and his current vested account balance is $75,000. Bill’s new solo 401k loan plus his outstanding loan balance cannot exceed 50 percent of his solo 401k account balance.

Step 1: 50% x $75,000 = $37,500

Step 2: $37,500 – current outstanding loan balance = maximum second loan amount
$37,500 – $29,000 = $8,500

The maximum additional solo 401k loan amount Tim may borrow from the solo 401k plan is $8,500.

 Additional Resources

To visit the IRS page that deals with the multiple solo 401k loan rules, CLICK HERE.

To learn more about the various loan rules including what happens when the solo 401k loan goes into default, VISIT HERE.

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