A potential solution, only to be used in extreme cases when your back is up against a wall, is to “borrow money from yourself”*. A way to do this is to create your own 401(k) , just like a large business has*.

You are allowed to creat a Solo 401(k) as a person that is “starting up a business” , initiating a business, etc… even if that business is just a thought on a peice of paper and you are just forming it and it is just a thought. Get it?

So with that in mind, you could rollover your existing IRA into your Solo/Individual 401(k) or, if you are unemployed**, rollover your 401(k) from work into your Solo/Individual 401(k). Most Solo/Individual 401(k)’s can be open for about $50.00 per year.

NOW…. you have the exact tax penalty free401(k) loancapabilities as any other 401(k) you had at work.

The main rule is you can borrow 50% of your account value, up to $50,000.00. You have up to 5 years to pay it back at prim interest rate to ….yourself! Your account receives the interest! To boot, there is no 10% early withdrawal penalty ( if you under age 59 1/2) and you have 5 years to pay the loan back to aviod paying the federal income tax due. If you do not pay back some or all of the loan, the federal income tax would be due at that point… down the road when you are in better financial shape to do so.

It is a pretty neat solution to a very difficult situation. So many individuals have take the tax and/or penalty hit in a time when they are strapped for cash, This could be avoided using this technique. Please feel free to contact our office at (877) 800-8713  or local (561) 455-0059 for more information.

* Please review with your accountant to confirm or discuss any potential tax information or consequences

** If you are employed, your 401(k) at your work could be rolled into your Solo 401(k) or an IRA Rollover in your name. Most 401(k) plan documents allow for an “In-Service 401(k) Rollover”