Is the solo 401k allowed to lend money to me or anyone directly related to me?

QUESTIONS: Is this a self directed IRA? Is the solo 401k allowed to lend money to me or anyone directly related to me (spouse, kids, parents) or an entity owned or managed by me? I was told from someone in the Club that with a self directed IRA that would be a violation. Can you confirm that this would not violate any tax rules please?

ANSWERS: While the solo 401k may not lend funds to a disqualified person, the prohibited transaction rules contain an exemption for a solo 401k loan to the solo 401k owner/participant. Click on the following link from the IRS website to confirm the following:  http://www.irs.gov/irm/part4/irm_04-072-011.html

4.72.11.3.2  (11-01-2010)
Loans Between Plan and Disqualified Person Who Is a Participant or Beneficiary

1.     A loan to a disqualified person is a prohibited transaction unless it is a loan to a participant or beneficiary that meets the conditions of the statutory exemption for such loans or is a loan for which the DOL has granted an administrative exemption.

2.     A plan loan to a participant or beneficiary who is a disqualified person is permissible as long as the loan:

A.   Is adequately secured.

B.   Is available on a reasonably equivalent basis to all participants or beneficiaries in the plan.

C.   Bears a reasonable rate of interest.

D.   Is not made available to highly compensated employees (within the meaning of IRC 414(q)) in greater amounts than other employees.

E.    Is made in accordance with specific plan provisions governing such transactions.

Moreover, click on the following link to learn the solo 401k rules. http://www.mysolo401k.net/Solo401kLoan.html


Thanks,
Joan in North Carolina