Solo 401k Loan for Vacant Land Purchase

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.

 

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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