Pay Off Early Solo 401k Participant Loan

My wife and I each have personal/ participant loans against our respective solo 401Ks that we would like to repay.

QUESTION 1:

Is there a procedure that I need to follow to repay these solo 401k loans?

ANSWER:

  • While prepayment penalties do not apply to solo 401k participant loans, when paying off the solo 401k participant loan early make sure not to overpay or underpay the loan.
  • To determine the solo 401k loan payoff balance, look at the balance listed on the loan amortization schedule since your last payment. NOTE: Make sure your loan is current on all payments when looking at the “Balance” section of the loan amortization schedule.
  • When processing solo 401k payoff, make the check payable in the name of the solo 401k from your personal bank account and write “Solo 401k loan payoff” on the memo section of the check.
  • Deposit the solo 401k loan payoff check in the solo 401k account.

QUESTION 2:

Are there any restrictions on taking out a new solo 401k loan after we pay these loans back?

ANSWER:

  • Yes the 12-month rules applies to solo 401k loans.
  • Once the Solo 401k loan is paid off, there is a restriction on the amount of the second, which is reduced by the highest balance of the first Solo 401k loan in the previous 12 months.
  • You can find language HERE taken straight from the IRS website regarding multiple 401k loans.
  • However, if it has been 12 months since you paid back the previous solo 401k loan, then you can borrow the maximum loan amount which is 50% of your account balance not to exceed $50,000.

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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