Plan loan to owner

[John Feldt ERPA CPC QPA]

A 100% owner of a corporation wants to take out a loan from their 401(k) plan and lists "needed to fund the business to keep operations going".

After he receives the loan proceeds, he plans to immediately loan those funds to the business.

Isn't this a prohibited transaction, maybe indirectly?

Would it make a difference if he and his business partner were 50/50 owners both taking loans from the plan for this purpose?

Suppose the loan occurred "a while" ago and now the owner(s) are going to provide loans to the business? Does the lag time change anything?

[pmacduff]

I would go back to the plan loan provisions. Are there any restrictions in the plan loan policy? If there are none and the loan fits all of the loan criteria as specified in the Plan. And - if the participant makes all of the repays per the plan provisions and regs, I don't see a problem.

my 2 cents.

[Kevin C]

Examples (3) and (5) of §2550.408b-1(a)(4) address circumstances where that kind of situation could become a PT. In this case, I think that unless he pressures himself to take the loan and re-loan the proceeds to the company or unless he conditions the loan on the proceeds being re-loaned, he should be ok.