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Solo 401k FAQ – If I need funds from my Solo 401k, should I take it as a loan or distribution?
QUESTION:
I need to take money from my fund. What should I do? How can I approach this? As a distribution or a loan to pay back?
RESPONSE:
•If you take a distribution, you will have to pay 20% of federal taxes upfront so you will only receive 80% of the funds. You may then be required to pay more federal taxes depending on your personal tax bracket when you file your personal taxes next year. Lastly, a 10% early tax penalty will also apply since you are under age 59 1/2 which you will need to pay when you file your personal taxes next year. Lastly, if you are under age 59 1/2, you generally can only distribute funds from the solo 401k that were previously transferred to the solo 401k from IRAs and/or other former employer retirement plans. https://www.mysolo401k.net/solo-401k/under-age-59-1-2-solo-401k-distribution/
•If you take a solo 401k participant loan, you will need to make payments over a 5-year period.
