Loan and Hardship distribution

[Richard Anderson]

A participant has a deferral account balance of $6,000; $4,500 in deferral and $1,500 in earnings. He takes out a loan for $2,000.

Some time after the loan he is eligible for a hardship distribution. Assuming the account balance has not changed, how much can he take as distribution? The account now has $4,000 other investments and $2,000 loan balance. Can he take the full $4,000? $6,000 account balance less the $1,500 earnings is $4,500. Or, is he limited to $2,500? $4,000 in other investments less the $1,500 in earnings.