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Loans from Solo 401(k)s Unabated

A strengthening economy does not appear to have translated into fewer loans from solo 401(k)s.

IRA Financial Group partner Adam Berger recently told BenefitsPro that his firm has found that the rate of participant loans in their plans has not dropped despite the improving economy. He said that 20-25% of their participants took advantage of the ability to take a loan from their solo 401(k) during the lingering effects of the Great Recession.

Berger indicated that while the rate of plan loans has not dropped, the reasons for them have. He said that when the economy was in worse shape, participants used the money to help cover living expenses; now, however, they are using funds from the loans to help pay off credit card debt.
Bergman says his firm, which serves approximately 3,500 solo 401(k) plans, has found that the solo 401(k) has become more popular. One of the reasons for that, he says, is the ability to take such loans.

Solo 401(k) plans are available to small business owners and independent contractors that do not have full-time employees; their spouses may participate, too. Solo 401(k)s are subject to the same annual contribution limits as standard 401(k)s, and loans from them are structured in a similar fashion.