Can You Borrow From Your Solo 401(k)? 2026 Loan Rules and Calculator

Yes — a solo 401(k) can allow you to borrow from your own retirement savings without triggering an immediate tax bill, as long as your plan document includes a loan provision and you follow the IRS repayment rules. The catch: most free custodian plans (Fidelity, Schwab) don't support loans. You need either an E*TRADE solo 401(k) or a custom third-party plan document.

Quick numbers (IRC §72(p)). Max loan: lesser of $50,000 or 50% of your vested balance — with a $10,000 floor if your balance allows it. Repayment: up to 5 years, level amortization, at least quarterly. Interest: typically prime + 1%, paid back into your own account. Default: outstanding balance becomes a taxable distribution plus a 10% early withdrawal penalty if you're under 59½.¹

The $50,000 limit explained

IRC §72(p) governs all qualified plan loans. The maximum you can borrow is the lesser of:

$50,000 — reduced by the highest outstanding loan balance from this plan in the prior 12 months, and
The greater of (a) 50% of your vested account balance or (b) $10,000 — meaning if half your balance is less than $10,000, you can still borrow up to $10,000, as long as you have that much in the account.

Vested balance	50% of balance	Max loan	Rule that controls
$15,000	$7,500	$10,000	$10K floor applies
$30,000	$15,000	$15,000	50% rule
$60,000	$30,000	$30,000	50% rule
$100,000	$50,000	$50,000	50% rule (hits $50K cap)
$300,000	$150,000	$50,000	$50K cap
$1,000,000	$500,000	$50,000	$50K cap

If you have an existing outstanding loan from this same plan, the $50,000 ceiling is reduced by the highest outstanding balance in the past 12 months. Most solo 401(k) owners have no prior loan history, so the full $50,000 cap applies.

Repayment rules

The loan must be repaid in substantially level installments, at least quarterly, over a period of no more than 5 years. "Substantially level" means roughly equal payments — you cannot structure a small-payment period followed by a balloon at the end.

If you miss a payment, the IRS provides a cure period: you have until the end of the calendar quarter following the quarter in which the payment was due to make it up. Miss that window and the loan becomes a deemed distribution — taxable immediately, no matter what your intention was.¹

Primary residence exception. If the loan proceeds are used specifically to purchase your principal residence, the 5-year maximum does not apply — repayment can extend up to 25 years, similar to a conventional mortgage. This exception is limited to your primary home. It does not apply to vacation homes, rental properties, or refinancing an existing home.

Interest rate

The plan document sets the interest rate, which must be "commercially reasonable." E*TRADE's prototype plan, for example, uses prime rate plus 1%. As of early 2026, that puts the rate in the 7.5–8.5% range depending on when the loan originates.

Here's the key nuance: the interest pays back into your own plan account. You're effectively paying interest to yourself. That sounds like a wash — and it mostly is — but it isn't entirely neutral:

The dollars you borrowed out of the plan are no longer invested in the market during the repayment period.
Instead of earning market returns, those dollars "earn" the loan interest rate as they're repaid.
If the market returns 9–10% and your loan rate is 7.5%, you have a 1.5–2.5% annual opportunity cost for every year the loan is outstanding.
In a flat or declining market, this comparison inverts and the loan rate looks attractive.

Neither the loan repayments nor the interest you pay are tax-deductible — you're using after-tax dollars to repay yourself. This is different from a business line of credit, where the interest is deductible as a business expense.

Which custodians allow solo 401(k) loans?

Loan availability depends entirely on the plan document — not IRS rules, which permit loans universally. Many free prototype plans simply don't include the loan provision.

Provider	Loans?	Annual cost	Notes
Fidelity	✗ No	$0	Prototype plan does not include loan provision
Schwab	✗ No	$0	Standard individual 401(k) does not support participant loans
*ETRADE**	✓ Yes	$0	Only major free prototype with loan provision; rate is prime + 1%
MySolo401k	✓ Yes	~$125/yr + $525 setup	Custom plan document; assets held at Fidelity or Schwab; also enables mega backdoor Roth
Carry	✓ Yes	$199–$299/yr	Custom plan; ETF-focused; simpler interface than MySolo401k
Ascensus (ex-Vanguard)	✗ No	$20 base + $20/fund/yr	No loan support; not recommended for new accounts

If you already have a solo 401(k) at Fidelity or Schwab and want loan access, you have two paths: (1) open a new E*TRADE individual 401(k) and roll your balance over — E*TRADE allows incoming rollovers — or (2) add a custom plan document from MySolo401k or Carry that governs the same Fidelity/Schwab account. The plan document, not the brokerage, determines what features are allowed. See the full solo 401(k) provider comparison →

Solo 401(k) loan calculator

Enter your vested balance and loan parameters to see your maximum loan amount and monthly payment.

Vested account balance ($)

Loan amount you want ($)

Repayment term

Annual interest rate (%)

Tax consequences if you default

A plan loan is not taxable while repayment is current. If you miss the cure period deadline — or if the plan terminates while the loan is outstanding — the full outstanding balance becomes a deemed distribution:

Ordinary income tax on the full outstanding amount in the year of default, added to your other income at your marginal rate.
10% early withdrawal penalty (IRC §72(t)) if you are under age 59½. Note: the "separation from service at age 55" exception to the penalty does not apply to solo 401(k) loans, because as the owner you are simultaneously the employer and the employee — you cannot separate from yourself in the way the exception envisions.

Worked example. You borrow $40,000, miss the cure window at age 47, and you're in the 32% federal bracket. Result: $12,800 federal income tax + $4,000 penalty = $16,800 in taxes on a $40,000 loan. State income tax would add further. This is not a theoretical risk — it's the standard outcome of a missed loan payment, and it's why borrowing only what you can confidently repay is essential.

A specific risk for solo 401(k) owners: hiring employees

If you hire a full-time W-2 employee other than your spouse, your solo 401(k) status ends. The plan must either be converted to a plan covering all eligible employees (with nondiscrimination testing and higher admin costs) or terminated. A plan termination while a loan is outstanding accelerates repayment — failure to repay means the outstanding balance is immediately treated as a distribution.

This is a material risk if your business might grow. If there is a reasonable chance you will hire employees within the loan's 5-year repayment window, factor that into your decision. A business line of credit carries no retirement-plan complexity risk if your headcount is likely to change. See the 1099 vs. W-2 employee classification guide →

When a solo 401(k) loan makes sense

Short-term cash flow gap with a known resolution date. Accounts receivable is slow, a specific project payment is delayed, you have a clear repayment timeline. The loan bridges the gap without forcing a taxable withdrawal.
No credit alternatives available. The plan loan has no credit check, no application process, and no external approval. If your business is too new for a line of credit, this may be the only unsecured borrowing option available to you.
Market is flat or declining. Opportunity cost is lowest when the assets in the plan would otherwise be sitting in a down market. Borrowing during a correction reduces the foregone return.
Bridge to a specific near-term event. You're closing a property sale, waiting for a contract payment, or bridging a business acquisition — and you have high confidence in the payoff event.

When it doesn't make sense

Headcount likely to grow. Hiring employees forces the solo 401(k) structure to change and accelerates the loan.
You can get a business line of credit. Business LOC interest is deductible; 401(k) loan interest is not. If you qualify for a credit line, the after-tax cost of borrowing is lower via LOC.
You're near retirement or in a bull market. Reducing invested assets during a period of strong expected returns or when you need compounding most produces the highest opportunity cost.
The repayment would strain cash flow. A 5-year repayment schedule is fixed. Unlike a line of credit where you can make minimum payments in slow months, a 401(k) loan requires consistent quarterly repayment — default has severe tax consequences.

Alternatives compared

Option	Interest deductible?	Credit check?	Retirement account risk?
Solo 401(k) loan	No	No	Yes — default = income tax + 10% penalty
Business line of credit	Yes (business interest)	Yes	No
HELOC (business use)	Often deductible	Yes	No (home equity at risk)
SBA loan	Yes	Yes (extensive)	No (personal guarantee typical)
Early 401(k) withdrawal	N/A	No	Yes — immediate tax + 10% penalty

Not sure if a plan loan is right for your situation? A fee-only financial advisor specializing in self-employed clients can model the after-tax cost of your options — whether your current plan document supports loans, your opportunity cost given current market conditions, and whether a business credit line is a better fit. Matching is free.

Sources

IRC §72(p) — plan loan rules: $50,000 maximum, 50% of vested balance with $10,000 floor (§72(p)(2)(A)), 5-year repayment with level quarterly amortization (§72(p)(2)(B)), deemed distribution on default. Treasury Reg. §1.72(p)-1 (Q&A series) — cure period through end of calendar quarter following missed payment due date. law.cornell.edu — IRC §72.
IRS, "Retirement Plans FAQs regarding Loans" — confirms plan loan tax treatment, cure period, and deemed distribution on default for all qualified plan loans. irs.gov — retirement plan loan FAQs.
E*TRADE Individual 401(k) plan documents — participant loan provision at prime + 1%, 5-year repayment, 50%/$50,000 limit. Fidelity and Schwab prototype plan restrictions confirmed via their respective plan summaries. etrade.com — individual 401k.
IRC §72(t) — 10% early withdrawal additional tax, including exceptions list (separation from service at age 55 applies to employer plan termination, not plan loans); confirmed via IRS Publication 575 (Pension and Annuity Income). irs.gov — Publication 575.

Loan rules verified May 2026. IRC §72(p) provisions unchanged by SECURE 2.0 or OBBBA. Interest rate default reflects approximate prime + 1% as of early 2026; adjust to your plan's actual rate. Confirm specifics with your plan administrator and CPA.