Am I restricted by the Prohibited Transaction rules pursuant to Internal Revenue Code Section 4975 if I borrow money from my Solo 401(k) Plan?
No. A solo 401k loan is permitted at any time and for any purpose using the accumulated balance of the solo 401k as collateral for the loan. A Solo 401K participant can borrow up to either $50,000 or 50% of their account value - whichever is less. This loan has to be repaid over an amortization schedule of 5 years or less with payment frequency no less than quarterly. The interest rate must be set at a reasonable rate of interest - generally interpreted as prime rate + 1%. As of 9/1/13 prime rate is 3.25%, which means participant loans are to be set at the very reasonable Interest rate of 4.25%. The Interest rate is fixed based on the prime rate at the time of the loan application.
Please contact one of our 401(k) Experts at 800-472-0646 for more information.