Loan Availability after Messy Loan Transactions

[TPApril]

Plan allows multiple loans and loans are not my strong point. Participant terminated last year and 2 loans were defaulted (total $17,000). Plan Sponsor then moved assets and in the process, 1 other outstanding loan was deemed (total $18,000). He never took a distribution and was then rehired. He is now asking for a new loan, with a current outstanding balance of $37,000.

I'm without a doubt confused here, and there are probably issues I'm unaware of, but assuming he can take another loan, with balance 1 year ago of $35,000, would available loan balance be $1,500 (50% of $37,000 - $17,000)?

[rcline46]

If termination is a distributable event in the plan, and all three loans were defaulted and deemed distributed, then I would take the position that the loans were actually distributed even if the balance of the account was not distributed.

Now we have an account balance of $37,000 and NO outstanding loans. Participant can borrow 50%.

[ETA Consulting LLC]

If termination is a distributable event in the plan, and all three loans were defaulted and deemed distributed, then I would take the position that the loans were actually distributed even if the balance of the account was not distributed.

Now we have an account balance of $37,000 and NO outstanding loans. Participant can borrow 50%.

Correct, if by "deemed" you mean that an actual 1099-R was issued for the outstanding loan balance. When there is a subsequent distributable event, then the "deemed" distribution becomes an "actual" distribution that would've already been taxed.

Good Luck!