A Solo 401(k) participant can borrow up to either $50,000 or 50% of their account value with the following terms:

You can take the loan anytime by doing the following:

You can take a maximum of $50,000 or 50% of your account value, whichever is less. You have 5 years to pay back the loan at the prime interest rate plus 1% and you pay yourself (your 401k trust bank account) the loan payments + interest
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The interest rate is pre-set for you in the loan documents our software will generate.

Participant loans are per plan participant. You must have enough money in your own Sol 401k account for your participant loan (you cannot take a loan from your spouse's funds).
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The participant loan can be used for any purpose and at any time! As long as the plan documents allow for it & the proper loan documents are prepared and executed, a participant loan can be made for any reason.

Your Nabers Group Solo 401k plan automatically includes the full ability for each plan participant to take a loan.

A participant loan may be useful is you're otherwise considering distributing funds from your Solo 401k plan. A common example is wanting to pay bills, or reduce personal debt.

The participant loan interest rate is set as WSJ (Wall Street Journal) prime rate plus 1%. The WSJ prime rate is typically the base rate on corporate loans that’s posted by at least 70% of the 10 largest banks. That median rate plus 1% is your participant loan interest rate.

The participant loan interest rate for your Solo 401k is automatically calculated into the loan documents that are created on your Solo 401k dashboard.

If you do not currently have the Solo 401k feature and would like to activate it on your Solo 401k plan, please contact us through our Support center at [email protected].

The standard limit for a participant loan repayment period is five years or 60 months.

The exception to the rule is for using the loan to purchase a primary residence (real estate), in which the repayment period can extend up to 15 years. In order to qualify for the extended repayment period, the loan must be designated as going towards the purchase of a primary residence property.

Please note that the extended repayment period is not applicable for refinancing and may be made toward new purchases only.

You can have more than one outstanding loan from the plan at a time. However, the total outstanding amount of all loans taken cannot be more than $50,000 or 50% of the Solo 401k account balance, whichever is less. The Nabers Solo 401k allows for a maximum of 5 outstanding loans per plan to be taken at any time.

Note: If you participate in another 401(k), you need to consider any participant loans you have within that 401(k) plan as well. Loan limits are spread across all 401(k) plans.

The maximum amount of any loan is the lesser of $50,000 or 50% of the vested interest of the participant in the Plan; reduced by the participant's highest outstanding loan balance in the previous twelve months and the existing loan balance; even if all or a portion of this amount has been repaid.

Example 1: A participant takes out $50,000 in a participant loan on February 1, 2021 and pays it all back one day later. That participant won't be able to take out another participant loan (even from another 401k plan) for another 12 months. The soonest that participant could take another loan of any amount would be February 2, 2022 (one year after the payoff).

Example 2: A participant takes out $10,000 in a participant loan on February 1st 2021. That participant then pays back $1,000 on the first of the month starting in March for each month thereafter.
- At this point, that participant could take out another participant loan at any point for $40,000, presuming there is at least $100,000 in the Solo 401k.

Example 3: A participant takes out $10,000 in a participant loan on February 1st 2021. That participant and pays back $1,000 on the first of the month starting in March for each month thereafter.

On July 15th, 2021, the participant has paid back $5,000 ($1,000/month) towards the original participant loan. If they want to take out a second participant loan on July 15th, the maximum they can take is still $40,000. This is because the highest outstanding loan balance in the previous 12 months is $10,000.

For information regarding participant loans, please see: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans#3

In cases of a default, the loan amount outstanding is considered a premature 401k distribution on which you will owe income tax plus a 10% penalty if you are younger than 59 1/2.

Here is the part of Internal Revenue Regulations pertaining to this issue:

(a) Timing of deemed distribution. Failure to make any installment payment when due in accordance with the terms of the loan violates section 72(p)(2)(C) and, accordingly, results in a deemed distribution at the time of such failure. However, the plan administrator may allow a cure period and section 72(p)(2)(C) will not be considered to have been violated if the installment payment is made not later than the end of the cure period, which period cannot continue beyond the last day of the calendar quarter following the calendar quarter in which the required installment payment was due. “Nabers Group Comment – (Approximately 3 months)”

(b) Amount of deemed distribution. The amount of the deemed distribution equals the entire outstanding balance of the loan (including accrued interest) at the time of such failure.

(c) Example. The following example illustrates the rules in paragraphs (a) and (b) of this Q&A-10 and is based upon the assumptions described in the introductory text of this section:

Example. (i) On August 1, 2002, a participant has a nonforfeitable account balance of $45,000 and borrows $20,000 from a plan to be repaid over 5 years in level monthly installments due at the end of each month. After making all monthly payments due through July 31, 2003, the participant fails to make the payment due on August 31, 2003 or any other monthly payments due thereafter. The plan administrator allows a three-month cure period.

(ii) As a result of the failure to satisfy the requirement that the loan be repaid in level installments pursuant to section 72(p)(2)(C), the participant has a deemed distribution on November 30, 2003, which is the last day of the three-month cure period for the August 31, 2003 installment. The amount of the deemed distribution is $17,157, which is the outstanding balance on the loan at November 30, 2003. Alternatively, if the plan administrator had allowed a cure period through the end of the next calendar quarter, there would be a deemed distribution on December 31, 2003 equal to $17,282, which is the outstanding balance of the loan at December 31, 2003.

Q-14: How is the amount includible in income as a result of a deemed distribution under section 72(p) required to be reported?

A-14: The amount includible in income as a result of a deemed distribution under section 72(p) is required to be reported on Form 1099-R (or any other form prescribed by the Commissioner).

Your Solo 401(k) plans state that within 10 days of the first missed payment, the administrator must notifiy the participant in writing that the loan will be in default if it is not cured by the end of the quarter following the quarter that the first payment was missed. This is the longest cure period available under these regulations.