The mechanics
- Max loan: lesser of 50% of vested balance or $50,000
- Term: up to 5 years (longer for a primary residence purchase)
- Interest rate: prime rate + 1–2% (currently around 9–10%)
- Payments: at least quarterly, usually monthly
- Who collects the interest: you — it goes back into your own Solo 401k account
Why people use it
- Down payment on a rental property or primary residence
- Equipment or vehicle purchase for the business
- Short-term cash flow bridge (without taking on external debt)
- Higher-ROI internal investment than market returns might offer
The appeal: you're paying yourself interest instead of a bank. On a $50,000 loan at 9% for 5 years, that's roughly $12,200 of interest — which lands back in your retirement account instead of a lender's pocket.
The three big catches
The money you borrowed isn't invested anymore. If the market returns 10% annualized during your 5-year loan, you missed ~$30,000 in growth on a $50k loan. The 9% interest you paid yourself is paltry compensation.
A 401k loan is only economically sound if (a) the asset you bought appreciates faster than the market would have, or (b) you pay the loan back very fast.
If you miss payments and default, the outstanding balance is treated as a taxable distribution. If you're under 59½, you also owe the 10% early withdrawal penalty on top of ordinary income tax. A $40,000 default at a 24% bracket could cost $13,600 in taxes + penalty.
If you stop having self-employment income (close the business, take a W-2 job full-time), the loan typically must be repaid within 60–90 days or it becomes a taxable distribution.
Who offers Solo 401k loans?
Almost no big-brokerage Solo 401k plans support loans out of the box:
| Provider | Loans supported? | Notes |
|---|---|---|
| Fidelity | No | Their Solo 401k template excludes loans |
| Schwab | No | Same — no loan provision |
| Vanguard | No | Same |
| E*TRADE | Yes | Only free option with loans |
| My Solo 401k Financial | Yes | $125/yr after setup; full flexibility |
| Nabers Group / Rocket Dollar | Yes | Similar fees to My Solo 401k; includes self-directed option |
If you already have a Solo 401k at a no-loan provider and want a loan, you can roll it over to E*TRADE or a specialty custodian. Research the process carefully.
Example: $50k loan to buy a business asset
You need $50k to buy a piece of equipment that will generate $20k/year in additional net revenue. You take a 5-year Solo 401k loan at 9%.
- Monthly payment: ~$1,038 (principal + interest)
- Total paid back to yourself: ~$62,280 over 5 years
- Additional business revenue over 5 years: $100,000
- Market opportunity cost (assumed 8%): ~$23,400
- Net benefit vs not taking the loan: ~$14,300 (plus the $62k back in retirement)
Numbers only pencil out when the business use has a clear, high ROI. For "I just want to pay down personal debt" — usually a bad idea.
What the loan does to your tax situation
The loan itself is not taxable. Loan proceeds are treated like a bank loan, not a distribution.
Interest you pay on the loan is not tax-deductible. Yes, even if you use the proceeds for business. This is where Solo 401k loans are weaker than a commercial business loan — you get the tax deduction on business loan interest, not self-loaned 401k interest.
When a HELOC or business loan beats a Solo 401k loan
- Market is likely to outperform your loan rate
- Business loan interest would be deductible
- You might not be able to repay within 5 years
- You plan to close the business or change income sources soon
When a Solo 401k loan beats everything else
- You have poor credit and can't get a decent bank rate
- You need cash fast (3–5 business day funding vs weeks)
- You want to avoid personal guarantees
- You're confident in fast repayment
Is a Solo 401k loan right for you?
Our tool shows your available Solo 401k capacity, the projected cost vs benefit of a loan, and whether a conventional business loan would be cheaper.