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Re-Finance your Mortgage with a Solo 401K Plan Loan

Pursuant to Internal Revenue Code Section 401, a loan by a plan to a participant is not considered a distribution, even if it is secured by the employee’s account. Under the Economic Growth Tax Relief & reconciliation Act of 2001 (EGTRRA), the loan feature was expanded to qualified retirement plans for the self-employed – also known as a Solo 401K Plan, Individual 401K, Self-Employed 401K, or Self Directed 401K Plan.

In order for a 401K Plan loan not be taxable pursuant to Internal Revenue Code Section 401, the loan cannot be for more than 50% of the participants account value or $50,000, whichever is less. The Loan must be paid back at least quarterly over a maximum a five-years. The loan must be a fully amortized straight-line loan that is paid back including principal and interest. The lowest interest rate that can be used is the Prime interest rate as per the Wall Street Journal. As of August 15, 2011, the Prime interest rate as per the Wall Street Journal is 3.25%.

The Solo 401K loan can be used for any purpose, including helping paying off a personal or business mortgage. The strategy employed would be to borrow up to $50,000 from your Solo 401(k) Plan at 3.25% in order to pay off a mortgage at a higher interest rate. In addition, instead of paying the bank you will now be paying yourself back (your 401(k) Plan). Each participant of the Solo 401K Plan can take a loan. Thus, if you and a spouse are each self-employed or employed by the same business that has no employees other than you, then you can each do a loan and borrow up to $100,000 tax-free and penalty free!

To learn more about the advantages of using a Solo 401K loan to pay a mortgage or a debt obligation please contact a 401K Expert at 800-472-0646 or visit

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Posted in Solo 401(k)

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