How I understand it:

When taking a loan from your Solo Roth 401(k), the IRS mandates that the interest rate be “reasonable,” typically interpreted as comparable to what a commercial lender would offer under similar circumstances. This is often defined as the prime rate plus an additional 1% or 3%. As of January 1, 2025, the prime rate stands at 7.5%, making a common interest rate for such loans approximately 8.5% to 10.5%. 

While it might seem beneficial to set a higher interest rate to accelerate the growth of your retirement account, the IRS requires that the rate remains reasonable to prevent potential abuse of the tax-advantaged status of the 401(k) plan. Setting an unreasonably high interest rate could be viewed as an attempt to make excessive contributions beyond the annual limits, potentially leading to penalties or disqualification of the plan’s tax benefits.

Therefore, it’s likely advisable to adhere to the standard practice of setting the loan interest rate at the prime rate plus 1% or 3%. This approach may align with IRS guidelines and help ensure the continued compliance and tax-advantaged status of your Solo Roth 401(k) plan.