A Simple Plan For A Start-up Loan
 By Daniel Lamaute

When seeking money for their start-up business many entrepreneurs are using a simple plan to get a loan from their own IRA or 401(k) assets.

Starting in 2002, new rules allowed a business owner to set-up a Solo 401(k) and take a loan from his Solo 401(k) account.  The Solo 401(k) - also called a Self-Employed 401(k) or Individual 401(k) - is designed for a business with no employees.

You can initially fund your Solo 401(k) that you set-up with a mutual fund company by rolling over an existing IRA, 401(k) you left with a previous employer, or other retirement funds into the plan.  You can borrow up to a maximum of $50,000, but not more than 50 percent of the balance in your Solo 401(k) account. By taking a loan instead of a distribution you may also avoid the tax penalties generally associated with early withdrawals.

A loan from a Solo 401(k) is fast to obtain because you are in effect taking the money from your account.  In many cases the 401(k) loan interest rate is fixed at prime rate for the duration of the loan, generally five years or more.  The loan payments, interest and principal, go back in your 401(k) account. 

You can use your 401(k) loan for any purpose.  However, if the loan is not paid back on schedule the loan balance will be subject to taxes and a possible 10% penalty.

The Solo 401(k) is available to any business including C corporations, S corporations, partnerships, and sole proprietors working part-time or full-time in their business.

 
Lamaute Capital, Inc., an investment firm specializing in retirement plans, operates Click2Borrow.com information source for small business owners interested in the Solo 401(k) and its loan feature.