Private lending from the Solo 401k

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

Yes. You can lend money from your 401k to other non-disqualified persons. 

As fiduciary of your 401k, you are responsible to invest the plan for its benefit. These loans must be financially advantageous for your 401k, as they are investments of your plan. Your 401k will receive the principal and interest from these loans. 

Benefits of lending from your 401k

• You can choose who your 401k lends to, as long as that person/entity is non-disqualified
• You also choose the terms of the 401k loan, such as:
  • Principal amount
  • Interest rate
  • Length of the term
  • Payment frequency and amount
  • Whether the note is secured by collateral or not
• Lending is an asset that you may have experience with and understand
• The return to your 401k is pre-established
• Loans can potentially yield a cash stream

Important things to know

• The 401k loan must be a real economic transaction
• The 401k is its own financial and legal entity. It is separate from you, your personal information, and your personal finances.
• The lender is the 401k, not you/the plan participant
• All loan documents must be in the name of the 401k, not your personal name
• All income goes back to the 401k 
• You, as plan trustee, can hire a professional to generate the loan documents: promissory note, deed or trust or mortgage, etc. Sense Financial does not have or offer loan documents.
• All expenses for this process (loan documents, loan servicing) are paid by the 401k
• You, as plan trustee, must sign the loan documents for the 401k
• You, as plan administrator, must keep all records of the 401k loan. Forms for recordkeeping are available on the client portal. These are completed and then kept by you for recordkeeping only; they are not the loan documents themselves.

Forms to Administer Solo 401k Plan