The Solo 401k Loan Primary Residence Rules

The rules that apply to a Solo 401k loan (solo 401k participant loan) whereby the proceeds are used for any purpose are the same but a little more favorable if the proceeds are used to acquire a principal/primary residence of the solo 401k participant.

For example, when solo 401k plan loan proceeds are used towards the purchase of a primary dwelling for the participant, the loan payback period increases from 5 to 15 years. What’s more a principal residence loan need not be secured by the participant’s principal residence to satisfy the requirements. Finally, pursuant [Treas. Reg. 1.72(p)-1, Q&As 5,6,7,8] a loan from a solo 401k plan used to repay a loan from a third party will qualify as a principal residence loan.

Solo 401k Loan Primary Residence – Illustration 

On July 1, 2012, a solo 401k participant processes a $50,000 solo 401k loan having a repayment period of 15 years with quarterly installments. On August 1, 2012, the participant purchases a principal residence and pays a portion of the purchase with a $50,000 bank loan. On September 1, 2012, the Solo 401k plan loans the $50,000 to the participant, who uses it to pay the bank loan. Because the solo 401k loan proceeds were not used to refinance a loan, the loan would qualify as a principal residence loan.

 

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