Loan payment / refinance

[jmartin]

Facts:

- Plan allows for two loans outstanding at a time (for any reason)

- Participant has $100,000 balance

- Participant takes $20,000 loan for 5 years (payments have not started)

- bi-weekly payment is $170

Participant wants to pay a lump sum payment (outside payroll) of $15,000, leaving a balance of $5,000. He would like to re-finance the loan based on the $5,000 balance. This would result in a much lower payroll deduction (down to approx $40 a pay). can this be done? Would the new loan still be taken for 5 years. Again no payments have started.

He also wanted to know if he could transfer $15-$20k from an IRA to the 401k plan and count that as a lump sum payment. I assumed that answer to be no.

[Lou S.]

I don't see any legal IRS problems with what you are trying to do with respect to limits or what is allowable. Just make sure the refinance doesn't extend beying the original 5 year period. You also need to make sure your loan program allows for it.

As for paying with IRA assets via direct transfer, that would be a rollover in, not as a lump-sum loan payment.