Maximum loan availability

[Guest susa]

Please help. Here's the facts:

Participant currently has a vested account balance of $23,738.26. This balance includes an outstanding loan balance of $7,489.39. In April 2002 he took out a loan of $9,000. As of Dec 2002 that loan was paid off. In Oct 2002 he took out a loan of $8,000 which has the remaining balance of $7,489.39. It looks like he may have gotten too much in Oct but would he be eligible for approx $4,300 now(i.e., (23738.26/2)-7489.39)?

[Guest Richard Scheer]

Looks good to me.

[Guest SueJ]

I'm no expert, but it has always been my understanding that you have to subtract the highest outstanding loan balance in the prior 12 months.

In this case that would be when both loans were outstanding in the month of October. Since together they would add up to more than 50% of the balance, I would say participant is not eligible for any additional loan at this time.

[Guest Richard Scheer]

Maximum loan available is equal to the lesser of:

(1) $50,000 reduced by the highest o/s balance in the last 12 months;

or

(2) 50% of the vested balance.

The reduction for highest o/s balance only applies to the $50,000 limit, not the 50% limit.

[Guest SueJ]

Thanks much for the clarification!

[Belgarath]

And in addition, FWIW, you can take a loan for more than 50% up to a de minimis 10,000. For example, if your vested account balance is 12,000, then you can take a loan for up to 10,000. Watch out for this, however, as most PLAN documents I've seen don't allow this. For good reason, since it requires additional collateral, as you still can't use more than 50% of your vested account balance as collateral. But I have seen a few documents that allow it.