Using a Solo 401K Loan to Buy Real Estate – How Does it Work?

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January 12th, 2012

An individual investor is permitted to use his or her 401(k) plan assets to buy real estate. The IRS has always allowed a 401K or Solo 401K Plan to buy real estate.

Internal Revenue Code Section 72(p) allows a Solo 401K Plan participant to take a loan from his or her 401K Plan 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 401(k) 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 – generally interpreted as prime rate. As of 1/12/12 prime rate is 3.25%, which means participant loans are to be set at the very reasonable Interest rate of 3.25%. The Interest rate is fixed based on the prime rate at the time of the loan application.

As a result of the recent economic meltdown, banks and other financial institutions have significantly limited their lending capacity to self-employed business owners, thus, causing grave financial pressure on self-employed business owners. The Solo 401k Plan is a perfect structure for any self employed business owner seeking to use funds to make personal real estate investments.  The Solo 401K loan is also perfect for a small business owner looking to use his retirement funds to buy or invest in his or her own business.

To learn more about the advantages of using a Solo 401K loan, please contact a Solo 401K Expert at 800-472-0646.


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