If you have a Solo 401(k) plan or are looking to open one up, here are a couple of calculators you should utilize. One of them will tell you the maximum contribution you are allowed to make, while the other will show you how much of a loan you can take from your plan.
Click here for the Solo 401(k) Maximum Contribution Calculator.
Internal Revenue Code Section 72(p) allows a Solo 401K Plan participant to take a loan from his or her Solo 401K Plan, also called an Individual 401K or Self Directed 401K, so as long as it is permitted pursuant to the business’s 401K Plan documents.
A Solo 401k loan is permitted at any time 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. The lowest interest rate permitted to be used for the Solo 401K Loan is the Prime Rate as per the Wall Street Journal, which as of 9/1/13 is 3.25%.
The Interest rate is fixed based on the rate at the time of the loan application.
It’s important to make sure that all loan payments are made on time. If a loan repayment is missed, the entire loan amount becomes due and payable and is treated as a taxable distribution, and if applicable, a 10% early distribution penalty.
Click here for the Solo 401(k) Loan Calculator.
If you would like a free Solo 401(k) Information kit, click here.
Updated Solo 401(k) Contribution Limits for 2015
The IRS Announced the 2015 Solo 401(k) Contribution Limits: the maximum employee deferral contribution increases $500 to $18,000. For those age 50 and older, the catch-up contribution limit also increases $500 to $6,000 (for a maximum contribution of $24,000).