All Forum Posts by: Chris Fethke

Another way that isn't so practical is sourcing an attorney and placing the money into your own management as a 401(K) self managed portfolio. You will not pay interest, and you receive full access, no taxes. Contact a legal advisor for this one. Good luck!

@Chris Fethke

The following IRS websites are good resources for the 401k loan rules and distribution rules. 

https://www.irs.gov/Retirement-Plans/Retirement-Pl...

https://www.irs.gov/Retirement-Plans/Plan-Sponsor/...

You can take a loan out for either:

- 50% of your account balance UP TO

- 50k

Usually pay back within 5 years max, payments starting soon after loan is taken out. If you leave your job, you will need to pay entire balance back.

Rates are pretty good, probably around 4-4.25% right now.

@Chris Fethke

As noted above, you can typically borrow from a current employer 401k plan. You would not be able to borrow from a former employer plan, but could roll that to a self directed IRA or 401k.

The specific loan terms are specified by your plan document, but will generally look like the following.  Check with your plan administrator.

• You may borrow the lesser of 50% of your participant account value or $50,000.
• The loan is for a 5 year term
• Rates are generally in the range or prime + 1-3 points.
• There is no penalty for pre-payment of a loan.

So long as you repay the loan according to the terms, there are no restrictions as to how the funds may be used and there are no taxes or penalties. If you fail to repay the loan, it is considered a distribution and taxed accordingly, including early distribution penalties if applicable based on your age.

If you change jobs, you will be required to pay off the loan immediately or it will be considered a distribution as above.

Keep in mind, you put funds into the 401(k) plan on a tax-deferred basis. While you do not incur taxes for accessing the funds, you will be replacing the borrowed money with after-tax funds, so there is a loss of tax-deferral on the basis that you borrow. If your tax rate is 30%, you are effectively creating a -25% ROI for the funds borrowed from the 401k.

As such, a 401(k) loan is typically only a good resource for an activity that will really benefit you long term such as growing a business, and when other sources of credit may not be available.

I have a simple 1 page document I use with family.  And I have a 17 page attorney document that I use with non-family.  The issues are similar, but the level of detail grows the bigger and broader you get. 

Here's a few things to make sure are included: 

FORMATION

MEMBERSHIP

CAPITAL ACCOUNTS

ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS

MANAGEMENT

TRANSFER AND ASSIGINMENT OF LLC INTERESTS

BOOKS AND RECORDS

TAXATION

TERMINATION AND DISSOLUTION

AMENDMENTS

PM me and I'll connect you with the docs I use.