Can I do private lending out of my Solo 401k?

Yes. You can use your 401k as a bank and lend money to other non-disqualified persons. Your Solo 401k would receive principal and interest just like a bank. The account holder (or trustee) chooses the borrower, principal amount, interest rate, length of the term, payment frequency and amount, and whether the note is secured by collateral or not. For recordkeeping please use appropriate form from the list of Miscellaneous Forms.

Benefits of 401k loans

• You have strategic control over the person/entity to whom you lend money as long as the person/entity is non-disqualified
• Lending is an asset that you have experience with and understand
• The return on your money is pre-established
• You choose lending terms and collateral with which you are comfortable
• Loans can potentially yield a cash stream

Important things to know

• The 401k loan must be a real economic transaction
• A 401k Trust is its own financial and legal entity, and it is separate from your personal finances
• As a separate legal entity, your 401k Trust has it's own name
• The 401k Trust is the lender, not the plan participant. Therefore, all income goes back to the 401k Trust
• All 401k loan documents must be in the name of the 401k Trust, not your personal name
• For the documents associated with your 401k loan to be complete and legal, they need to be signed by plan trustee
• Plan trustee can hire professional help to generate loan documents (promissory note, deed or trust or mortgage, etc.) and/or loan servicing, all expenses for this process will be paid by the 401k