Brian Gallagher Posted April 3, 2003 Posted April 3, 2003 When considering the max amount for a 401k loan, I know that you take into consideration the highest outstanding loan "balance" in the past 12 mos. My systems uses the highest principle and interest balance in the last year, but I thought it was just the principle that counted. Which is it? And do the regs anywhere define what a loan "balance" is? I just know the client will be wanting it explicitly spelled out. Remember: two wrongs don't make a right, but three rights make a left.
david rigby Posted April 3, 2003 Posted April 3, 2003 I thought a "loan balance" is always principle. I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.
Brian Gallagher Posted April 3, 2003 Author Posted April 3, 2003 Is there anything in the code or rev rulings or ERISA or regs or anything to support one way or another? Remember: two wrongs don't make a right, but three rights make a left.
Brian Gallagher Posted April 4, 2003 Author Posted April 4, 2003 .. Remember: two wrongs don't make a right, but three rights make a left.
R. Butler Posted April 4, 2003 Posted April 4, 2003 See Q&A 19(b) to the Final Loan Regs. Although it specifically deals with defaulted loans, there is no reason not to apply the same principles. If the loan isn't in arrears than only the loan balance is the principal.
Brian Gallagher Posted April 4, 2003 Author Posted April 4, 2003 I just read n the Pension Answer Book (2003) that "the amount of a deemed distribution equals the entire outstanding balance of the loan (including accrued interest) at the time of such failure." It cites Treas Reg 1.72(p)1, Q&A-10 Would it seem fair to apply this to my situation, that is, figuring out the highes outstanding balance in the past 12 mos? Remember: two wrongs don't make a right, but three rights make a left.
Mike Preston Posted April 7, 2003 Posted April 7, 2003 The "highest outstanding balance" seems pretty clear to me. Look at the last year, day by day. What is the amount that the participant would need to pay in order to eliminate the loan on each day? Take the highest one. Examine the consequences of doing it any other way. What you'll find is that if you are wrong, the entire new loan becomes taxable when issued. Why take that risk?
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