I thought I had a self-directed 401k?

QUESTIONS:

I am looking to invest the money I have in my solo 401k. I read that I can only borrow up to 50% of the value of a 401k. I have a self-directed 401k? Shouldn’t I be able to invest the full amount?

ANSWERS: 

Borrowing form your solo 401k and investing your solo 401k are two different things.

When you invest your solo 401k the entire amount can be invested because it is not a loan.

Whereas, when you borrow from your solo 401k the following applies:

You, as trustee/participant can take a loan/borrow from Solo 401k for any reason.

• The Solo 401k loan term is 5 years for general loans.

• The Solo 401k loan term can be more than 5 years not to exceed 15 years if used to purchase principal residence for you as trustee/participant of the Solo 401k.

• Solo 401k loan payments are made either monthly or quarterly

• The interest rate solo 401k loan is either: A certificate deposit rate plus 2 percent or the prime rate plus 1 percent.

• Solo 401k Loan payments are fixed payments consisting of interest and principal

• Solo 401k loan rules do not allow for Interest only payments or principal payments only.

• The maximum Solo 401k loan amount is either 50% of account balance or maximum amount of $50K.

– Example 1: Solo 401k balance is $50K; 50% of $50K = $25K (the Solo 401k maximum loan amount)

– Example 2: Solo 401k balance is $150K; 50% of $150K = $75K; however, the maximum permitted Solo 401k loan amount is $50K

– The minimum Solo 401k loan amount is $1,000.

• The Solo 401k rules require the following proper Solo 401k loan documentation:

– Solo 401k Loan Agreement

– Solo 401k Loan Application

– Solo 401k Loan Payment Amortization Schedule

You can obtain more information regarding borrowing/taking a participant loan by VISITING HERE.