Primary Residence Solo 401k Participant Loan Question

 QUESTION:

Can I take a participant loan from my solo 401k plan for  15-year or 30-year  term  if I use the funds for the purchase of my primary residence even though there will be no mortgage or bank loan on the property.  The reason there is no loan is that either a) the house is purchased all cash using the 401k loan funds or b) the seller is caring the note for the home purchase.

ANSWER:

The Code does not state that in order for the solo 401k participant loan to qualify under the primary residence loan term  payment exception  where the 401k plan loan can be paid over a period longer than 5 years a mortgage is required.  Therefore, understanding in the industry is that as long as the 401k loan is for the purchase of a primary residence, the repayment term could be either 15-year or 30-year repayment term (based on the general loan terms in your local area). IRC Section 72(p)(2)(B)(ii) says that 5-year max does not apply to principal residence loans (but does not provide a higher max).  Lastly, the solo 401k plan documents would also need to include language allowing for the 15 or 30 year 401k participant loan term payment period.

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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