QUESTION:
Can we open a solo 401k, borrow from it and use the loan proceeds to purchase land intended to build a house for primary residence and still do the 30 year payback. Must there by a residence already on the property, or does a vacant lot count?
ANSWER:
Generally a 401k participant loan must be repaid within 5 years. The 5 year repayment requirement does not apply to any loan used to acquire any dwelling unit which within a reasonable time is to be used as the principal residence of the participant.
A vacant lot is not a dwelling unit – i.e. a building where someone could sleep, eat and reside.
Moreover, given the time that that will take to construct a home on the vacant lot, it will likely be a significant amount of time before the house will be used as your principal residence.
Therefore, purchasing the lot does not qualify for the principal residence loan exception to the 5 year repayment requirement and the loan must be repaid within 5 years.
