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Husband/wife solo-401(k) plan. They were not using a TPA, have self-directed brokerage accounts, and used a loan recordkeeping system to take out 4 loans back in 2019 - 2 for each of them. As a TPA I have never dealt with this loan recordkeeping system so I don't know the whole story, but it allowed 2 of the loans to be taken with a 1% interest rate. Not Prime + 1% - just a flat 1%. The other two loans had Prime + 1% applied. Their financial advisors wised-up and brought them to your friendly local TPA. There are numerous other issues with these loans that we will help them fix through re-amortizing and consolidating. My questions for the BenefitsLink community: 1. Is there any possible way that a 1% interest rate would be a "reasonable interest rate" for a solo-401(k) loan in the eyes of the IRS? 2. Does anyone know how to shut down these loan recordkeeping systems when their services are no longer needed? They send monthly "invoices" for the repayments (which have been wrong - long story) and they charge a monthly fee that we need to end. I don't want to mention a name because I think they have botched these loans, but again, I don't know both sides of the story.

When cross-testing a 401(k) plan, we have always used an interest rate of 8.5% and the UP-1984 mortality table. Are those still the best choices or are others recommended. Input welcome!

Hello, all, I am currently working with an IRS VCP examiner to correct some improper plan distributions from a 401(k). The distributions were intended to be loans, but were not properly documented, amortized, etc. IRS has approved correction, under the specific circumstances involved. Part of the correction, of course, is that the Plan will be repaid and made whole, with proper interest, etc. What I'm puzzled about is this: In calculating the proper interest for the loans (taken out in 2011), I used Prime (3.25% in 2011) plus 2%. My understanding, per prior informal IRS guidance, was that this amount of interest would be "reasonable." (Here's a prior discussion on IRS's informal position regarding this: http://www.irs.gov/pub/irs-tege/rne_win12.pdf ) The confusion comes in because the IRS VCP agent, by phone, is now telling me that IRS auditors, on exam, are now seeking "justification" for interest rates used on plan loans, and that we need to ensure that the rate used is what would have been commercially available. See, e.g., this mention of this topic in the IRS Retirement News for Employers - Winter 2012, that the examiner brought to my attention: http://www.irs.gov/pub/irs-tege/rne_win12.pdf ) The IRS VCP agent suggested that my clients were professionals, and I should check to see if 5.25% was the rate they would have gotten. My first thought was that she meant that 5.25% is TOO LOW. On further reflection (and given recently low interest rates), I'm wondering if, instead, she is suggesting (albiet in code), that I should consider using a LOWER interest rate than 5.25% Because I'm thinking that an ACTUAL commercial loan would have been lower for that period. (Was she telling me that 5.25% interest was too high?!)