A Solo 401(k) loan allows you to borrow funds from your retirement account for personal or business use while repaying it over time. However, the IRS imposes strict limits and regulations on these loans to ensure compliance. This guide explains the rules, limits, and step-by-step instructions to take a Solo 401(k) loan from your account at American Estate & Trust (AET).
IRS Rules for Solo 401(k) Loans
Before taking a loan from your Solo 401(k), it is important to understand IRS regulations:
✔ Maximum Loan Amount – You can borrow the lesser of:
- 50% of your vested 401(k) balance or
- $50,000 (whichever is less)
✔ Repayment Terms – The loan must generally be repaid within 5 years, with payments made at least quarterly.
- Exception: If the loan is used to purchase a primary residence, the repayment term can extend up to 25 years.
✔ Interest Rate – The loan must charge an interest rate that is commercially reasonable (typically Prime Rate + 1%). The interest paid goes back into your Solo 401(k) account.
✔ Tax Consequences – If you fail to repay the loan on time, the remaining balance may be treated as a taxable distribution, and if you are under age 59½, it may also be subject to a 10% early withdrawal penalty.
✔ Spousal Consent Requirement – If you are married, your spouse may need to sign a spousal consent form before the loan is approved.
How to Take a Solo 401(k) Loan from AET
Follow these steps to request a loan from your Solo 401(k) through AET:
1. Complete the Loan Documents
Download and complete the following forms from your 401(k) plan package:
✅ Loan Application
✅ Promissory Note (outlining repayment terms)
✅ Spousal Consent Form (if applicable)
2. Submit the Loan Request via the AET Online Portal
1️⃣ Log in to your AET online portal
2️⃣ Go to: Invest (DOI)
3️⃣ Click: New Investment
4️⃣ Select: Other
5️⃣ Enter all required loan information, including funding instructions
6️⃣ Upload the completed Loan Application and Promissory Note
7️⃣ Click: Review
8️⃣ Click: Submit
Once submitted, you can track your request under the Invest DOI tab. The loan will move through the following statuses:
- In Process – Loan request is under review
- Approved – Loan request has been accepted
- Completed – Funds have been released
- On Hold for Corrections – Additional information or corrections are needed
📌 Processing Time: Loan requests are typically processed within 3-5 business days, assuming all documentation is in order.
Important Considerations
⚠ Taking a loan reduces your retirement balance – While repaying the loan with interest, you may miss out on potential investment growth within your Solo 401(k).
⚠ Loan Defaults Have Tax Consequences – If you default on the loan (fail to make timely payments), the IRS may classify the remaining balance as a distribution, making it taxable and potentially subject to a 10% early withdrawal penalty.
⚠ Loan Repayments Must Be Made on Time – The repayment schedule should be followed strictly to avoid IRS penalties. Payments must be made at least quarterly.
Final Steps
Once your loan is approved and funded:
✔ Start making scheduled loan repayments
✔ Ensure payments follow IRS guidelines
✔ Track your loan status through the AET online portal
If you have questions or need assistance, contact AET Support for further guidance.
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