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Solo 401k Loan

Your Solo 401k has a participant loan feature, which allows a participant to borrow funds from their account(s) within the plan.

Understand the participant loan

  • Read the loan policy in your plan document
    • Summary Plan Description, Appendix 1-Loan Policy
    • Basic Plan Document, Section 9“Participant Loan”
  • Read our participant loan articles
Solo 401k loan articles
  • Maximum loan amount is 50% of the participant’s entire Solo 401k balance, not to exceed $50,000
Calculating participant loan
  • Interest rate for loan repayments: Prime + 1%
Historical prime rate
  • Interest rate cannot be increased or decreased once loan is processed
  • Loan is paid back in equal and fixed payments: quarterly or monthly
  • Loan can be paid back early without penalty
  • Loan period is maximum of 15 years if funds are used for primary home purchase. This extended repayment period can only be used toward new purchases only and is not applicable for refinancing.
  • Loan period is maximum of 5 years if used for all other purposes
  • Each participant in the plan can borrow funds from their account(s) within the plan
  • Once borrowed (i.e. in your personal bank account), the loan proceeds can be used without restriction

Complete the loan documentation

You must complete all loan documentation before taking your participant loan. This consists of an application and loan amortization schedule.

  • Application
Loan application
  • Amortization schedule

Create an amortization schedule using your loan amount, interest rate, repayment frequency, and repayment period. You can chose to download an editable loan calculator spreadsheet or use one of online calculators below:

Loan amortization schedule
Solo 401k loan calculator

Approve the loan application as plan administrator

As plan administrator, you are responsible for the administration of the loan:

  • Approve and keep the completed loan documentation
  • Ensure that loan repayments are made timely, according to the loan documentation
  • Keep records of the loan and its repayments

The loan documentation is kept in your file because you are the administrator of your plan and the loan. It is not given to another party, such as the bank or Sense Financial.

Take the participant loan

 Once you have created and signed the loan documentation, you can then take the loan from the Solo 401k checking account.

  •  The funds must go from the 401k account to your personal account
  • If writing a check from the 401k account, the check is made payable to you with “Participant loan” noted on the check memo line
  • If wiring the funds from the 401k account, the funds are wired to your personal account with “Participant loan” indicated as the subject

Repay the participant loan as outlined in the loan documentation.