Maximum Loan Amount

[jane123]

Please help -I am trying to determine if this participant can take a second loan

Vested balance in November $55,000

New loan in November $25,000

No loan payments have been made yet.

Balance in January is $30,000 + loan of $25,000

Participant wants to take second loan

We do not use the $10,000 limit, where you can exceed the 50 percent if the loan amount will be $10,000

My calculation says no second loan allowed. I used the following formula

Participant may borrow the lesser of A or B.

A = $50,000 – Highest Outstanding Balance (HOB)

B = (.5 x vested balance(VB) - Outstanding Balance (OB)

A= $50,000- $25,000 + $25,000

B= (.5 x $30,000) - $25,000

$15,000-$25,000 = -$10,000

This suggests that the participant is not allowed to take an additional loan.

Here is my question, should VB be $30,000, or should it be $55,000 (where $55,000 includes the outstanding loan balance).

Please help!!

Thanks

[Lynn Campbell]

I would say he can borrow $2,500 more. In your numbers, B should be 1/2 of $55,000 = $27,500 - minus present loan of $25,000 = $2,500.

[Guest 401der]

I agree with Lynn Campbell. The outstanding loan is considered an investment of the account balance and doesn't decrease the account balance until the account is distributed or deemed distributed through default.

[jane123]

Thanks guys