While TD Ameritrade offers Individual 401k (a/k/a Solo 401k), which allows for investing in mutual funds and stocks, the drawback is that TD Ameritrade’s Solo 401k does not allow for Solo 401k loan (i.e., it does not permit the self-employed business owner to borrow funds from his Solo 401k known as a Solo 401k loan).
TD Ameritrade Solo 401k Loan Provisions
It’s not quite known why the TD Ameritrade Individual 401k or Solo 401k does not contain Solo 401k loan provisions, but I suspect two factors are involved:
TD Ameritrade does not want to be responsible for administering the Solo 401k loan (i.e., making sure the Solo 401k participant makes the scheduled Solo 401k loan payments, tax reporting delinquent loans (Solo 401k loan defaults)), and
the final reason why I suspect the TD Ameritrade Solo 401k plan does not allow for Solo 401k participant loans is that they don’t make any money from funds that are not being used for trading stocks since one of the ways TD Ameritrade makes their money is through charging a commission on each trade.
Self-Directed Solo 401k Loan through TD Ameritrade Brokerage Account
However, one way to process a Solo 401k loan while still using TD Ameritrade brokerage services is to open a self-directed Solo 401k through a Solo 401k provider whose Solo 401k plan document contains the Solo 401k loan provision. Further, the Solo 401k provider’s Solo 401k plan document will name you as the trustee of the Solo 401k, which means that you are ultimately responsible for making the Solo 401k plan decisions including whether or not to borrow from Solo 401k. Lastly, the Solo 401k provider will draft the Solo 401k loan documents, usually for free.
The Self-Directed Solo 401k Loan Process using TD Ameritrade Brokerage Account
To open a Self-Directed Solo 401k brokerage account with TD Ameritrade, you will need to complete their Trust Account Application, Checking Card Application and ERISA Plan Information Form. All three of these documents have to be submitted with the executed Self-Directed Solo 401k documents and Solo 401k Trust Document, which are drafted by the Solo 401k provider. It’s important to reiterate that under this Self-Directed Solo 401k arrangement TD Ameritrade’s only role is to provide a brokerage account for your Self-Directed Solo 401k. Put simply, TD Ameritrade will not be administering nor serving as trustee of your Solo 401k. Instead, both of these rolls will be filled by you. Therefore, you will not only be responsible for administering the Solo 401k loan, but also for making investment decisions. As such, you will be able to invest your Solo 401k in alternative investments such as real estate, precious metals, tax liens, promissory notes, private placements, to name a few in addition to equities (stocks and mutual funds).
You can learn more about the TD Ameritrade Self-Directed Solo 401k arrangement by visiting: