Solo 401k Participant Loan for house upgrades | None Taxable

QUESTION: Is there a way to use my solo 401k to fund a personal loan via interest bearing contract to do upgrades in the house I am living instead of giving the interest to an institution?

Doug E. in Maryland

ANSWER: Besides making a taxable distribution, the only way to use your solo 401k funds without running afoul with the solo 401k prohibited transaction rules or being subject to taxes for personal use including to pay for upgrades performed on your personal home is to borrow from the solo 401k through a solo 401k participant loan. The solo 401k allows the participant to borrow from the solo 401k plan up to 50% of his account balance up to a maximum of $50,000. The loan term is for 5 year, or 15 years if the borrowed funds will be used towards the purchase of your primary home. The solo 401k participant loan payments are fixed and made either monthly or quarterly. The solo 401k loan interest rate is based on the Wall Street Journal rate at the time of the loan and one point is added.

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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