As a solopreneur running a single-member LLC or S corporation, you wear every hat—from CEO to payroll manager. Planning for retirement might not feel urgent, but having access to your savings when you need it most can empower smarter business and life decisions.
A solo 401k loan allows you to borrow from your retirement account without going through a bank or credit check. You repay the loan—with interest—back into your own 401k, not to a lender. It’s fast, flexible, and can be a helpful tool in the right scenario.
Still, borrowing against your future requires careful consideration. Understanding how these loans work, what they cost, and how they impact long-term savings helps you decide if this strategy aligns with your goals.
What is a solo 401k loan?
A solo 401k loan lets you borrow from your retirement account—essentially acting as both borrower and lender. Unlike traditional loans, you don’t need a bank, collateral, or even a credit check. The money comes directly from your account and is repaid—with interest—back into your plan.
Only solopreneurs with a one-participant 401k are eligible for this type of loan. That includes independent professionals with no full-time employees other than a spouse who has set up a solo 401k plan compliant with IRS guidelines.
The purpose of a solo 401k loan is typically short-term liquidity. Some use it to manage cash flow, cover emergencies, or fund business opportunities without pulling from savings or relying on high-interest debt. But it’s still your retirement money—so the decision should be strategic, not reactive.
How much can I borrow?
Solo 401k loans allow you to borrow up to $50,000 or 50% of your vested account balance—whichever is less. That means if your vested balance is $40,000, you could borrow up to $20,000. If you have $120,000 vested, the max loan is still $50,000.
Your available loan amount depends on liquid assets in the plan, not just total contributions or long-term investments. Funds must be readily accessible—not locked in illiquid assets like real estate.
Borrowing more than the allowed limit triggers serious consequences. If you exceed the cap or fail to follow plan procedures, the IRS may treat the excess amount as a taxable distribution, subject to income tax and a 10% early withdrawal penalty.
Keeping within the IRS rules protects your tax-advantaged status and avoids unintended penalties. Solo 401k administrators like Besolo make it easier to track loan eligibility and stay compliant without second-guessing the math.
What are the interest rates and repayment terms?
Solo 401k loans usually carry a fixed interest rate—prime plus 1% is a common benchmark. Even though you’re borrowing from your own plan, the IRS requires repayment with interest, which goes back into your retirement account as after tax contributions.
Loans must typically be repaid in equal installments over five years, unless used to purchase a primary residence. In that case, extended repayment terms may apply, depending on your plan’s rules.
Missed payments can trigger serious consequences. If you default, the outstanding balance may be treated as a taxable distribution, potentially resulting in income tax and early withdrawal penalties. Staying consistent with repayments helps preserve the long-term value of your plan while keeping within the rules governing retirement plan fees and loan structures.
How do I qualify for a solo 401k loan?
Solo 401k loans are available only if your plan specifically allows them. Not all providers offer this feature, so it’s important to review the loan provisions outlined in your plan documents. If loans are permitted, you’re typically allowed to borrow up to 50% of your vested account balance, with a cap of $50,000.
With Besolo’s Solo LLC or Solo S Corp, you can:
- Contribute up to $70K pre-tax to a 401k or Roth
- Easily access up to $50K/50% of your 401K balance through a 401K loan
- Have the option to take advantage of a self-directed retirement plan
Since you’re borrowing from your retirement savings, you don’t have to go through a bank or lender. The loan is issued directly from your solo 401k plan and repaid with interest back into your account. To remain compliant, you must follow strict documentation, repayment, and reporting standards. Besolo’s integrated admin tools help automate those requirements—so solopreneurs can avoid mistakes and stay focused on growth.
Understanding your loan options and eligibility starts with reviewing your plan document.
Will I need to have good credit to qualify?
No. Unlike traditional loans from banks or private lenders, solo 401k loans don’t require a credit check. You’re essentially borrowing from yourself—so your credit history, score, or debt-to-income ratio doesn’t factor into eligibility. Instead, loan approval is governed entirely by the rules outlined in your retirement plan document and your available vested account balance.
This makes solo 401k loans especially appealing for solopreneurs who may not have access to traditional financing or are rebuilding their credit. Since you’re not relying on a third-party lender, there’s no formal application process, no credit reporting, and no hard inquiries to worry about. You determine the terms—within IRS guidelines—and keep the interest within your account.
Can I use the money for whatever I want?
Yes. The IRS places no specific restrictions on how solo 401k loan funds must be used. That means you can use the loan to fund a business expansion, cover personal expenses, invest in real estate, or even pay off high-interest debt. As long as the loan complies with your plan’s provisions and is repaid on schedule, the choice is yours.
That flexibility is one of the biggest advantages of solo 401k loans. However, it also comes with responsibility. If you default or violate repayment terms, the loan is treated as a distribution—triggering taxes and potentially a 10% early withdrawal penalty. So while you have freedom in how you use the money, it’s smart to borrow with a clear repayment strategy in place.
Build flexibility into your retirement plan with Besolo
A solo 401k loan isn’t for everyone—but for self-employed professionals with a solid plan, it can be a smart, tax-advantaged way to access capital. Just be sure to stay within loan limits, follow repayment terms, and understand the potential impact on your long-term savings.
With Besolo’s integrated solo 401k tools, you get more than a retirement account—you get a self-employment system built for flexibility, automation, and peace of mind. Whether you’re planning to borrow, contribute, or simply grow your future, our Solo LLC or Solo S Corp packages make it easy to access up to $50,000 of your solo 401 balance through a 401k loan.
To learn more about how Besolo simplifies tax planning for solopreneurs and provides access to corporate-level benefits you can actually use. Build a more resilient, future-proofed business of one today and join Besolo!
