Prohibited to Use Solo 401k Funds as Security for a Personal Loan

The Internal Revenue Code (IRC) contains regulations including the prohibited transaction rules that apply to self-directed solo 401k plans. Violation of the prohibited transaction rules will result in taxes and penalties. The prohibited transaction rules are found in IRC Sec. 4975.

One of the rules found in IRC Sec. 4975 is use of solo 401k funds as security for a personal loan (e.g., a home mortgage).

EXAMPLE: James obtains a mortgage for his personal home and used his solo 401k funds as security for the home mortgage.

This transaction resulted in a prohibited solo 401k transaction as the IRS rules restrict the use of solo 401k funds as security for a personal loan.

IRS Taxes

Taxes and penalties apply to prohibited transactions as outlined in IRC Sec. 4975(a).

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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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