I’m going to invest in a real estate deal with my Solo 401k, but I’m a short of the funds that I need. Can I take out a short term loan from a friend or relative? Does the loan need to be paid back with funds from the Solo 401k?
Yes. If you don't have enough funds and are not able to rollover additional funds from another qualified account or make contribution, then taking a loan to finance your investment is possible.
You want to make sure that:
- You are not taking a loan from a disqualified person.
- You are not providing a personal guarantee.
The 401k trust is receiving the loan, and there is no personal guarantee. This will make the loan non-recourse.
The loan must be paid back using funds of the 401k. Using personal funds for the repayment of the loan would be illegal.