Balance and 401k Loans

[JOH]

I'm probably overthinking this.  Participant has vested balance of $90,000.  Take out a loan for $35,000.  We display their account balance now of $55,000 and a loan balance of $35,000.  6 months later, Participants wants to take a second loan.  The second loan calculation would be based on the $90,000 ($55,000 account balance plus the $35,000 loan balance) and not just the $55,000 account balance, right?

[Larry Starr]

4 hours ago, JOH said:

I'm probably overthinking this.  Participant has vested balance of $90,000.  Take out a loan for $35,000.  We display their account balance now of $55,000 and a loan balance of $35,000.  6 months later, Participants wants to take a second loan.  The second loan calculation would be based on the $90,000 ($55,000 account balance plus the $35,000 loan balance) and not just the $55,000 account balance, right?

The problem with your presentation is that his account never goes down to $55,000.  It continues to be $90,000 BUT he has an outstanding loan of $35,000.  The loan is an asset of the plan (or his account), so his vested balance hasn't changed.

The second loan will be based on his account balance, which as noted, it the $90k number. Of course, in calculating how much is available, the outstanding loan balance (actually, highest outstanding balance in the prior 12 months, which in this case would be the full $35k) need to be taken into account in applying the maximum loan value.

[imchipbrown]

My little spreadsheet says there's $10,000 available if you can lend no more than 1/2 vested account balance.  $45,000 VAB - $35,000 highest 12 mo outstanding loan.

 

[PamR]

My understanding is it is the lessor of $50,000 minus the highest outstanding loan balance OR 50% of their account balance.  So, in this case 50% is $45,000 and you subtract the CURRENT loan balance from that, you only go to the highest outstanding when you are using the $50,000.  So it may be a bit more than $10,000 if he has made any payments on the loan.

[Lou S.]

Chip and Pam I think your saying the same thing.

Take current vested account balance which as Larry correctly points out includes the loan (lets say it's still $90K) divide by 2 and subtract current loan balance (let's call it $35K for ease) and you are are left with chip's $10K.

Take Pam's 50k limit and subtract the highest balance of $35K in last 12 months (I'm assuming he had no loan before the $35K one) and you get $15K.

The limit on a new loan (assuming the plan allows more than one) is the lesser of $10K or $15K so a new loan would be limited to $10K.

If the Plan has enacted COVID-19 Loan Limits and this is a COVID-19 Loan situation, the results would change on maximum amount.

[david rigby]

Perhaps just before, or just after, you are doing your arithmetic, please also check to see what the plan document says.