Plan Loan

[Madison71]

I posted a little while ago, but can someone please describe the loan requirement rules for 1/2 of the vested account balance? Plan allows multiple loans - participant took out a small loan a couple of years ago and wants to take out another. His account balance includes the remaining loan balance that needs to be repaid. Do I calculate 1/2 of his total vested account balance by adding the remaining balance of the original loan to his account balance - then figure out 1/2 of that balance and that is the total loan he can have outstanding (including 1st loan and loan he will take). Thank you.

[HarleyBabe]

The outstanding loan balance is added to determine a total account balance. You then take 1/2 of that. From that amount you subtract the outstanding loan balance and that gives you an amount that could theoretically be borrowed. However, you have to be careful with the new regs for 72P and replacement loan issues. Let me know if you need an example.

[BG5150]

You also have to take in consideration any principal outstanding in the past 12 months. Generally, though, this doesn't come into play, unless the acct balance is over $100k.

[tertue]

The outstanding loan balance is added to determine a total account balance. You then take 1/2 of that. From that amount you subtract the outstanding loan balance and that gives you an amount that could theoretically be borrowed. However, you have to be careful with the new regs for 72P and replacement loan issues. Let me know if you need an example.

Yes....I need an example. Participant took out a $35K loan from plan that had a balance of $70K. Loan current balance is $27K. Loan balance 12 months ago was $33k Plan currently has $52K ($35k + additions from loan payments + $7k contributions since loan). Please detail how to figure maximum amount for a 2nd loan.

[mschwechter]

The outstanding loan balance is added to determine a total account balance. You then take 1/2 of that. From that amount you subtract the outstanding loan balance and that gives you an amount that could theoretically be borrowed. However, you have to be careful with the new regs for 72P and replacement loan issues. Let me know if you need an example.

Yes....I need an example. Participant took out a $35K loan from plan that had a balance of $70K. Loan current balance is $27K. Loan balance 12 months ago was $33k Plan currently has $52K ($35k + additions from loan payments + $7k contributions since loan). Please detail how to figure maximum amount for a 2nd loan.

In this case, assuming the participant is 100% vested, then the total account balance is $79,000 (52,000 + 27,000), 50% of that is 39,500 less outstanding loan balnce of 27,000 = 12,500 available for new loan.

[Jim Chad]

I think the reduction by the highest loan in the last 12 months only deals with the $50,000 limit....not the 1/2 of vested balance.