It depends on the plan type and the direction of the loan. Extensions of credit between an IRA and a disqualified person in either direction are always prohibited. A Solo 401(k) is the exception; it allows you to borrow from your own plan under specific rules.
You cannot lend money to your IRA or Solo 401(k). IRC Section 4975(c)(1)(B) prohibits any direct or indirect lending of money or extension of credit between a plan and a disqualified person. Your IRA cannot lend money to you.
This is not limited to formal loans. If you use personal funds to cover a plan expense intending to be repaid, that also constitutes a prohibited extension of credit.
You cannot personally guarantee a loan obtained by your plan. Courts have consistently held that a guarantee is an indirect extension of credit under IRC Section 4975(c)(1)(B). The prohibition applies whether or not you are ever called on to honor the guarantee.
This matters when a plan-owned entity employs any debt instrument such as a mortgage to purchase real estate, a credit card, or a margin trading account. The loan must be non-recourse, meaning the lender's only remedy is the asset itself. No personal guarantee from you or any other disqualified person can be involved.
A Solo 401(k) can include a participant loan feature, and the Self-Directed Plans Solo 401(k) does. This allows you to borrow from your own plan for any purpose, without taxes or penalties, as long as you follow the rules under IRC Section 72(p).
Key loan parameters:
If you miss quarterly payments or default, the outstanding balance is treated as a taxable distribution. A 10% early distribution penalty applies if you are under age 59½.
Because you are the trustee and administrator of your own Solo 401(k), you manage the loan process yourself. No third-party approval or additional fees are required.
Can my IRA LLC obtain a credit card?
No. Any credit extended to an IRA-owned entity that is personally guaranteed by you or another disqualified person is a prohibited transaction. A self-directed retirement plan can only take on non-recourse debt. As far as we know, no financial institutions offer non-recourse credit cards.
Can I temporarily use personal funds to cover a plan expense and reimburse myself later?
No. This is an extension of credit from you to the plan. Even informal, short-term arrangements of this kind violate IRC Section 4975(c)(1)(B). All plan expenses must be paid directly from plan funds.
This information is provided for educational purposes only and should not be interpreted as tax, legal, or investment advice. Readers are encouraged to consult a qualified professional who can offer guidance based on their personal situation.