401(k) Loan Calculation

[Guest Mannix]

How are the loan calculations done when the Participant's account balance is less than $50,000? Please see below, did we calculate the 3rd loan correctly?

$3,622.35 = Current Cash at ING (100% vested)

+ 780.08 = Current Balance on Loan #2 (Loan #1 paid off 07/29/2010)

$4,402.43

x 50%

$2,201.22

- 1,880.53 = Highest Outstanding Balance on any one day (09/01/09 = $1,000 New Loan #2 + $880.53 Loan #1 Balance)

$320.69 = New Loan (But, does not meet $1,000 minimum threshhold, so no new loan)

Thanx.

[Laura Harrington]

How are the loan calculations done when the Participant's account balance is less than $50,000? Please see below, did we calculate the 3rd loan correctly?

$3,622.35 = Current Cash at ING (100% vested)

+ 780.08 = Current Balance on Loan #2 (Loan #1 paid off 07/29/2010)

$4,402.43

x 50%

$2,201.22

- 1,880.53 = Highest Outstanding Balance on any one day (09/01/09 = $1,000 New Loan #2 + $880.53 Loan #1 Balance)

$320.69 = New Loan (But, does not meet $1,000 minimum threshhold, so no new loan)

Thanx.

The highest oustanding loan balance reduces the $50,000 threshold, not the 50% of vested account balance threshold.

The calculation should be:

$3,622.35 = Current Cash at ING (100% vested)

+ 780.08 = Current Balance on Loan #2 (Loan #1 paid off 07/29/2010)

$4,402.43

x 50%

$2,201.22

- 780.08 current outstanding loan balance

$1.421.14 = amount available for 3rd loan

[tertue]

Can participant take out another loan while first loan still active? If so, I assume the 2nd loan is separate from the 1st loan. How does one figure the highest loan amount for the 2nd loan?

[austin3515]

When the balance is that low the highest balance in the previous 12 months is a moot point, because the $50,000 limit is no where near an issue. In your examples, maybe the $50,00 limit will drop to $48,000, which is way higher than the 50% limit.

Some plans will allow only one loan. If the Plan allows just one loan, then refinancing is the only option. If the participant is taking the max available, then the entire new loan must be repaid wihtin 5 years of the original loan. But the refinancing rules are more complicated than I care to get into... For example, if the new loan is small enough, then the participant might qualify for a new 5 year term.

[BG5150]

Some plans will allow only one loan. If the Plan allows just one loan, then refinancing MIGHT BE the only option.

Fixed.

Not all plans allow for refinancing; some specifically disallow it.

[austin3515]

Agreed; we love to disallow refinancings. In fact I've considering paying my clients to disallow refinancings...

[Ejay2018]

Having trouble understanding and need help. Vanguard states I have highest outstanding balance of $12,714 in past 12 months  (6214.70 outstanding loans in period ending 12/16 + current loan $6500 taken 8/7/2017) and my max for 3rd loan is $4,338

The $6,214 represents 3 previous loans of which 2 were paid off 7/20/17 and 11/24/17

current loans balances are $1,259 and $5,302

Vested Amount = $26,238

outstanding loan balance = $6,561

If the 50% vested is applied wouldn't it be :

26,238 +6,561= $32,799

32,399x.50= 16,399

$16,399 - 6,561 = 9,838

thanks

[401king]

The 12-month balance may not apply because your combined loans does not exceed $50k. 

Are you sure that the $26,238 does not include your loan balances?

Are you sure that you're 100% vested? 

Did they give any info on how they got to $4338?

[Ejay2018]

Statement breaks  loan and balance into separate categories, then provides a total. and yes 100% vested.  no information on how they derived at that number,  or what formula is being used.

[401king]

I think you should speak with Vanguard for clarification.

[Ejay2018]

Spoke with someone and they stated the outstanding loan balances in a rolling 12 month period is used in determining future loan amounts.

[austin3515]

First of all it is almost impossible to imagine their system wouldn't calculate accurately. Correction, it is impossible.

2nd based on the informaiton you gave, even if the 26K includes the loan balance, I still get a different number than what they have provided.

And taking into account my first statement, it means that in all likelihood you are missing something.  What you need from them is a calculation.  Not a rep over the phone but something on paper that demonstrates the max. 

 

[401king]

18 hours ago, Ejay2018 said:

Spoke with someone and they stated the outstanding loan balances in a rolling 12 month period is used in determining future loan amounts.

Your loan should not be affected by the rolling 12-month balance; that only comes into play when your loans near $50k (combined). 

[Ejay2018]

Using calculation from previous post I get $9,839. Can someone show their caculation so I can compare to what vanguards method is?

thanks

[austin3515]

If 26,238 is the value of the investments excluding the loans, your calculation is correct.  But again we know something must be wrong with your figures because my money is on Vanguard's $100 million software package calculating it correctly.

[NJ Mike]

15 minutes ago, austin3515 said:

If 26,238 is the value of the investments excluding the loans, your calculation is correct.  But again we know something must be wrong with your figures because my money is on Vanguard's $100 million software package calculating it correctly.

Yes but their $100 million software package is only as accurate as the ability of the person who does the input!

Happy New Year to all!!

 

Mike

 

[austin3515]

Untrue.  The $100 million dollar program simply indicates the max loan based on the data that the software already has (account balance, loan balance, and any other limitations).  No data entry required.

For that matter, perhaps the plan only takes into account certain sources for the 50% threshold. That could account for the discrepancy.  It is an extremely rare scenario, but there really must be something.

[401king]

Perhaps the Plan has its own limitations. You need to take your questions back to Vanguard for real answers. 

[austin3515]

1 minute ago, 401king said:

Perhaps the Plan has its own limitations. You need to take your questions back to Vanguard for real answers. 

Gee why didn't I think of that 

[Ejay2018]

While I await Vanguards calculation explanation, secondary question would be "If the available is in fact $4338, why isn't the greater of $10,000 or 50% of vested balance applied?

[austin3515]

Nobody, and I mean nobody, uses the $10,000 provision you indicate, because it involves using non-plan assets as collateral.  I've read about it in books but in my lengthy career I have never seen it done.

[ESOP Guy]

To make sure you understand what Austin is saying the law defines the maximum amount a loan can be from a qualified plan.  The plan document can always set a lower limit.  The most common example of plans doing so is they never use the $10k limit for the reasons he stated. 

[Ejay2018]

Thanks , that clears that question up. Now I await the calculations as each individual I spoke with over the phone consistently references the highest balance in rolling 12 month scenario.

[Ejay2018]

Finally received a detailed explanation from Vanguard.  There is a portion of my balance (Company stock$10k)that can not be withdrawn for loan purposes. Therein lies the difference in amount available. Thanks for all the repsonse that allowed me to pose the right question to Vanguard!!

Now my next questions is can you do a Hardahip withdrawal immediately after Loan has been processed.?

[ESOP Guy]

11 hours ago, Ejay2018 said:

 

Now my next questions is can you do a Hardahip withdrawal immediately after Loan has been processed.?

As you just found out with the loan question it depends in the end what the plan says.  The law would allow it assuming you have a hardship that qualifies.  So ask Vanguard the question. 

[ESOP Guy]

On 12/27/2017 at 4:09 AM, austin3515 said:

First of all it is almost impossible to imagine their system wouldn't calculate accurately. Correction, it is impossible.

Your confidence wasn't misplaced it turns out. 

[BG5150]

...and don't be surprised if that company stock is unavailable for the hardship as well.