maximum interest rate on participant loan

[Earl]

owner wants to borrow Roth money with high rate of interest. thoughts on max rate that could be charged?

[david rigby]

Should he have his head examined?

[Earl]

sorry, I don't understand

[david rigby]

Is there value in maximizing one's rate of interest?

[Earl]

Effectively it is a roth contribution

[QDROphile]

Old trick. Not legal. Interest must be a commerically reasonable rate. The local loan shark is not offering commercially reasonable rates. The local loan shark is not worried much about enforcement, either.

[Belgarath]

What QDRO said.

If you are looking for a reference for your client, 1.72(p)-1, first paragraph.

As to what would costitute the upper end of "commercially reasonable" - I can't say. I don't believe that the instant cash loans offered on television by various legalized usury lenders would be considered reasonable, and I'd stick with "normal" viable commercial lending institutions.

[masteff]

I'd say the upper bound would be equal to a "stock secured" loan from a reputable financial institution. You'll probably have to call several places to get a good average.

Merely for a point of reference, my credit union currently lists a stock secured loan at 6% (this is arguably a bit low since it's a credit union vs a bank). This isn't unreasonable to me if you compare against, for example a platinum credit card charging prime + 2% (prime currently listed by the Fed is 3.25% http://www.federalreserve.gov/releases/h15/update/ ).

And you might read this thread which was more about prime but might give some insights: http://benefitslink.com/boards/index.php?/topic/50904-irs-says-prime-is-not-reasonable/

EDIT: or this thread http://benefitslink.com/boards/index.php?/topic/42136-loan-interest-rate-can-it-be-too-high/