Copyright
© 2005 Daniel Lamaute
Lamaute Capital, Inc.
http://www.investsafe.com/
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 the small 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 a 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 that employs only owners and their spouses,
including C corporations, S corporations, partnerships, and sole proprietors working
part-time or full-time in their business.
Author: Daniel Lamaute Retirement Plan Specialist at Lamaute
Capital, Inc. Lamaute Capital, Inc., an investment firm specializing in retirement
plans, operates http://Click2Borrow.com
information source for small business owners interested in the Solo 401(k) and
its loan feature.
