Primary Residence Loan & Extra Payments

[415 Limit]

Participant took a $50,000 loan from her 401(k) account that uses a reputable recordkeeper. The primary residence loan is amortized over 30 years & the regular payment is $137.99 each pay period. About a year into the loan the participant starts making larger payments ($600 per pay period) so that the loan can be paid off much sooner. The new, higher payment amount is consistently the same and will continue through the duration of the loan until it is paid off. The recordkeeper has been applying all of the extra payments amounts to interest & has not reduced the principal balance. The recordkeeper claims that the interest on the 30-year loan is a fixed dollar amount and must be paid regardless of if the participant is making larger payments, & they claim they have no way of rebuilding or re-amortizing the loan unless the loan is physically paid off with cash.

Aside from the TPA tracking the loan and having the recordkeeper write off the "balance" at the end once the loan is truly paid off (if the recordkeeper will allow this), has anyone else come across this situation or have any thoughts on a workaround?

Thanks for any input.

[Lou S.]

record keeper is an idiot

have them tell you what code section allows them to apply 100% of the exess payment to interest.

Estimate the APR that would generate and then ask them to justify that as a reasonable rate of interest under 72(p)

[415 Limit]

Thank you for your input. I agree with all of your comments (especially the first one!) I have asked to schedule a conference call with their legal department & will see what they say.

[John Feldt ERPA CPC QPA]

"reputable recordkeeper"

reputed for what?