Borrowing from Solo 401k

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stockrex

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Well, I never thought I had to do this but I need to borrow from my solo 401k (long story),
I have a rollover 401k from previous job
I also have sep ira
and individual ira
as I am self employed and have been for the last decade.

Has anyone borrowed from a rolled over 401K?
Do the same rules apply? lie max 50% or 50k
How long does it take to process?
 
The only thing you have to remember, is you are not just borrowing the money. But you are also killing off all the future earning power that money will provide in compound interest over time. If you calculate it out, you might be much better served in the long run, to just borrow the money outright in a straight loan using the 401K as collateral. Without touching the money in it. Or else a home equity loan of some type. I would avoid messing with ANY retirement account if at all possible. Even if you have to pay a higher interest rate. You could be money ahead in the long run.
 
If you borrow from your own 401k you get your own interest back.

What gets ugly is if the market goes down and you get margin-called.
 
Sorry to hear you are in this position. Be careful.
I would make sure you understand all the rules and risks.
BITOG will offer help, but is not the proper place for this kind of advice.
 
Originally Posted by JeffKeryk
BITOG will offer help, but is not the proper place for this kind of advice.


No kidding. Contact the fund directly and speak to someone. The rule is never borrow from your retirement funds but life doesn't always listen. When we bought/sold homes a year ago we borrowed from a 401k briefly because of timing. Felt guilty breaking THE RULE but it got the deal done , put it back and didn't cost much.

Hope you have better times ahead OP.
 
Originally Posted by billt460
The only thing you have to remember, is you are not just borrowing the money. But you are also killing off all the future earning power that money will provide in compound interest over time. If you calculate it out, you might be much better served in the long run, to just borrow the money outright in a straight loan using the 401K as collateral. Without touching the money in it. Or else a home equity loan of some type. I would avoid messing with ANY retirement account if at all possible. Even if you have to pay a higher interest rate. You could be money ahead in the long run.





This is correct. I would consider this as a last resort option.
 
If it is a medical hardship or similar, it's not as bad, but there's a pretty substantial hit if you can't pay it back-believe 10% ON TOP of any federal, state, and local taxes you would owe on it. And unlike a HELOC or similar, the interest is not tax deductible (although you're effectively paying it to yourself). Definitely a last resort.
 
I hear you on the last resort guys, unfortunately, I won't have gone this route if it was not the last route.

I called TDAmeritrade, their IRA dept is closed today, I have to call back on Monday.

Here is what i found:

401k loan rules apply, $50 origination fee and $25 yearly maint fees, 5 year back back required, unless buying primary residence, then 15 years.

Loan is not = distribution,
Withdrawing from 401k = Taxes on amount withdrawn plus 10% penalty, nope I do not meet the criteria of hardship.

What I unsure of is if my rollover 401k is eligible for loans, hence my question, the lady could not tell me a straight answer :-(.

Here is the link to the TD page
https://tickertape.tdameritrade.com/retirement/401k-loan-rules-16624
 
Last edited:
Originally Posted by stockrex
I hear you on the last resort guys, unfortunately, I won't have gone this route if it was not the last route.

I called TDAmeritrade, their IRA dept is closed today, I have to call back on Monday.

Here is what i found:

401k loan rules apply, $50 origination fee and $25 yearly maint fees, 5 year back back required, unless buying primary residence, then 15 years.

Loan is not = distribution,
Withdrawing from 401k = Taxes on amount withdrawn plus 10% penalty, nope I do not meet the criteria of hardship.

What I unsure of is if my rollover 401k is eligible for loans, hence my question, the lady could not tell me a straight answer :-(.

Here is the link to the TD page
https://tickertape.tdameritrade.com/retirement/401k-loan-rules-16624

I would think a rollover 401K (or technically a standard IRA) WOULD be eligible for a loan-but, like I said, if something happens and payments can't be made, bad & expensive things start to happen. My rule has always been, try to keep at least a years worth of bill payments in the bank-money market & CDs, 401K=use in case of financial apocalypse. I am only 5 years away from 59 1/2, so if things got bad, I could last on beans & water for a while...
 
I haven't done it in years, but with my 401K, it's frighteningly easy. A few clicks online and the money is deposited in my bank account. I've taken loans out for cars, home improvement, etc for up to 48mo. I think I can go as high as 72months. It's not bad to do if you grab your loan out of it when the market is high, and then it tanks a bit. In a way, you captured some value out of it in that scenario. Of course If it goes the other way it sucks. Like said, you pay yourself back the interest.
 
Since you're only taking up to half of your account it's like converting a cash account to a margin one. Your stocks have up to 2x the power they otherwise have, up.... or down.
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If this is for a medical debt you may be better off pleading your case and settling for less.
 
The forum at bogleheads.org is to finance what BITOG is to oil. They have good advice over there. Do you have any home equity you can tap?
 
I can have up to two loans at a time, each up to 5 years unless it's for a primary residence. That gives you ten years. The fee is a one time $50 per loan. I think $50k max except for the primary residence where you can take half of your principal. Loaned amounts are not taxable unless you don't pay them back. Then you are liable for all taxes and penalties. Right now the interest rate is 4%, of course you are paying it to yourself. Every plan has its own unique rules.
 
I hope it is simple and quick,

It is a health issue for my oldest.
Yes, I do have equity in my house, I will probably do a cash out refi soon but right now I need some liquidity.
I am pretty disciplined but I can't put a price on my children's well being, so the need for excess liquidity.

Thanks for the forum link I will post there too.

I don't the cash for more than a year from what I can project now.

Thanks again guys, kinda anxious right now.
 
For some 401K's, ones where the employer matches 50 cents on the dollar, early withdrawal is a money making operation, even with the 10% penalty.

I contribute $100, my employer $50, after the 10% penalty, I can withdraw $135, which is more than I ever contributed.

It's never a good thing to wipe out a retirement account. But for some, it has value.
 
Originally Posted by Cujet
For some 401K's, ones where the employer matches 50 cents on the dollar, early withdrawal is a money making operation, even with the 10% penalty.

I contribute $100, my employer $50, after the 10% penalty, I can withdraw $135, which is more than I ever contributed.

It's never a good thing to wipe out a retirement account. But for some, it has value.


Agree, I am fully vested, I rolled it over to TD when I left the company (#1 in the world ;-))

Calculated risk I have to take so I can wait to do a cash out refi, It is not the feeling in the gut but I need to take care of the $$ so I can focus on the task on hand.
 
Mr Nice, Yes Sir, sometimes in life you have to do what you have to do.

Looks like if the roller over is an IRA (which I will confirm) then I am NOT able to loan from it.

If that is the case, then I will have to fall back on plan B, C, D
 
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