A former employee of a company that sponsored a 401(k) plan has about $25,000
in her account. Because she isn't active she can't take a loan from the plan. She
would like to start her own business. Can she set up her own 401(k) plan, roll the
funds from her previous employer into the plan and then make a loan of about
$6,000? Thanks for the responses and if you have a better suggestion this, too,
would be appreciated.

Sure she could do that. However, this person would have to weigh in the costs of drafting a plan doc, annual 5500, and any other expenses with maintaining a plan. Doesn't seem to be worth it to me if the main purpose is to just get a loan.

Well, operate as a sole prop, establish a 'uni-k' or whatever the particular fund house calls it, roll in the $ and borrow.

As long as the 'uni-k' rules are followed, cost is next to nothing, under $100,000 no 5500 EZ needed, can be done VERY inexpensively.

Of course the first employee blows the whole thing up.

One additional note of caution: If I had 5 dollars for every time I've seen a disaster from setting up a "one person" plan, using a brokerage house or ins. co. document, and expecting to never have any administration, I'd be wealthy beyond imagination. Yes you can do this in theory, but in reality, many documents don't get updated for law changes, they take impermissible loans or withdrawals, etc., etc...

Someone who knows something has to monitor such a plan, whether client, accountant, TPA, whatever. If they go off half-cocked, it will likely come back to haunt them, at a far larger expense than the small benefit they may gain from "easy" loan availability.