Need to loan money to your Self-Directed 401k or Solo 401k Plan?

It’s not commonly known, but Prohibited Transaction Exemption 80-26 (PTE 80-26), designed by the Department of Labor, allows Self-Directed 401k or Solo 401k Plan owners to loan funds to their 401k if used for the payment of ordinary plan operating expenses (e.g., mortgage payments of 401k asset, or other payments associated with assets of the 401k) or for purposes incidental to the ordinary operation of the Solo 401k Plan. There is no limit on loan amount.

However, before applying this PTE exemption you first have to confirm that you don’t have other viable ways of paying Solo 401k operating expenses, such as the following:

  • You don’t have cash in your Solo 401k
  • Have no other qualified plans (e.g., other 401ks, Profit Sharing Plan) or IRAs to roll over
  • Have already maximized your annual cash contribution for the year or don’t qualify to make contribution

Put simply, you can only loan funds to your self-directed 401k or Solo 401k if you have exhausted above options.

If after determining above you still need to loan funds to your solo 401k, the following conditions must be met to be in compliance with PET 80-26:

  • The loan is interest free and no fees are charged to the Solo 401k.
  • The loan is unsecured.
  • If loan terms are for more than 60 days, a written loan agreement is required.
  • Loan is used for purposes incidental to the ordinary operation of the plan (i.e., not used for making investment purchases, or personal use)

Here’s website link for Department of Labor containing information on this PTE exemption.

http://www.dol.gov/ebsa/regs/fedreg/notices/2006005075.htm

Here’s the contact information for DOL agent regarding this PET exemption:

Christopher Motta, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, (202) 693-8540

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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