401K Loan Question

I am looking at paying off the two 401K loans that I have, but I am concerned that if something came up and I needed to borrow again that I would be able to access enough cash.  I have been reading through information on this forum as well as other sites and I am not certain of the calculation formula when you have two loans.  Here are the specifics:

Total Vested Balance = $73,870

Loan 1 Balance = $10,508

Loan 2 Balance = $15,180

Prior to borrowing Loan #2, I paid a loan off on 2/23/18 with an outstanding balance of $17,679.  Assuming that I payoff the two outstanding loans on 2/15/19 and wait until 3/15/19 to borrow again what would my loan availability be?  My assumption is that it is about $34,000.  Does that sound right?

Not to me.  What will be relevant are:

(1) Your vested balance on 3/15/2019 (you gave your current vested balance, which will not be used in the 3/15/2019 calculation).   

(2) The highest outstanding balance in the last 12 months before 3/15/2019 of Loan 1 (you gave the current loan balance, which is not used in the calculation).

(3) The highest outstanding balance in the last 12 months before 3/15/2019 of Loan 2 (you gave the current loan balance, which is not used in the calculation).

In lieu of (2) and (3) it is possible that you will need:

(4) The highest outstanding balance in the last 12 months before 3/15/2019 calculated by looking at both of your loans on each day.

Most plans use (4).  Some plans use (2) and (3).

Recently, the IRS has "clarified" that plans may determine the "maximum loan amounts outstanding in the 12-month period ending on the date a new loan is requested" (listen to the podcast linked in the FAQ, below) more broadly than how the FAQ seems to.  If they do that, (that is, use (4) instead of (2) and (3)) then it is possible that the "maximum loan amounts outstanding in the 12-month period ending on the date a new loan is requested" will be higher and the loan amount you can take in a new loan would be even less.

I'm reluctant to even estimate the maximum loan you should be entitled to because the amount declines, dollar for dollar to the extent (2) is greater than $10,508 and dollar for dollar to the extent (3) is greater than $15,180 [or, if (4) is in play rather than (2) and (3), dollar for dollar to the extent (4) is greater than $25,688].

But assuming (2) is not greater than $10,508 (a very bad assumption) and that (3) is not greater than $15,180 (another very bad assumption) [or that (4) is not greater than $25,688 (another bad assumption)] and that (1) is no less than $73,870 (yet another very bad assumption) the maximum loan available on 3/15/2019 would be $24,312 using the methodology of http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Loans#7.

I believe I've posted a spreadsheet that does the calculations.  I've lost track of where it is. Maybe somebody else knows.

Good luck.

Seems to me that the highest single loan balance is what is used, not a combined amount of the two loans.

Don't quit your day job! :-)

OK ass hole...I was asking a question

58 minutes ago, jwmc1 said:

OK ass hole...I was asking a question

 

I must have missed your question mark.  You must have missed my smiley.  All good, though.

13 hours ago, jwmc1 said:

Seems to me that the highest single loan balance is what is used, not a combined amount of the two loans.

Mike was very kind to you in his response; more importantly, he gave you hundreds of dollars worth of consulting advice for no charge. I'm not sure what your ERISA education is, but my guess is you have none and are a participant trying to figure out the arcane rules in the playground we exist in daily; that is a big mistake.  ERISA doesn't care what "seems to you"; sorry.

Frankly, what Mike should have said to you is: Contact your plan administrator and ask him/her that question and get the response in writing. There might very well be plan level limitations that would further modify what you can do or not do.

Best of luck.

Perhaps there is also guidance/example in the Summary Plan Description (SPD).

On ‎1‎/‎6‎/‎2019 at 1:11 AM, Mike Preston said:

Not to me.  What will be relevant are:

(1) Your vested balance on 3/15/2019 (you gave your current vested balance, which will not be used in the 3/15/2019 calculation).   

(2) The highest outstanding balance in the last 12 months before 3/15/2019 of Loan 1 (you gave the current loan balance, which is not used in the calculation).

(3) The highest outstanding balance in the last 12 months before 3/15/2019 of Loan 2 (you gave the current loan balance, which is not used in the calculation).

In lieu of (2) and (3) it is possible that you will need:

(4) The highest outstanding balance in the last 12 months before 3/15/2019 calculated by looking at both of your loans on each day.

Most plans use (4).  Some plans use (2) and (3).

Recently, the IRS has "clarified" that plans may determine the "maximum loan amounts outstanding in the 12-month period ending on the date a new loan is requested" (listen to the podcast linked in the FAQ, below) more broadly than how the FAQ seems to.  If they do that, (that is, use (4) instead of (2) and (3)) then it is possible that the "maximum loan amounts outstanding in the 12-month period ending on the date a new loan is requested" will be higher and the loan amount you can take in a new loan would be even less.

I'm reluctant to even estimate the maximum loan you should be entitled to because the amount declines, dollar for dollar to the extent (2) is greater than $10,508 and dollar for dollar to the extent (3) is greater than $15,180 [or, if (4) is in play rather than (2) and (3), dollar for dollar to the extent (4) is greater than $25,688].

But assuming (2) is not greater than $10,508 (a very bad assumption) and that (3) is not greater than $15,180 (another very bad assumption) [or that (4) is not greater than $25,688 (another bad assumption)] and that (1) is no less than $73,870 (yet another very bad assumption) the maximum loan available on 3/15/2019 would be $24,312 using the methodology of http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Loans#7.

I believe I've posted a spreadsheet that does the calculations.  I've lost track of where it is. Maybe somebody else knows.

Good luck.

Is this it?  I got this from someone on  here!

Loan Maximum Calculator (1).xls

On ‎1‎/‎6‎/‎2019 at 1:37 AM, jwmc1 said:

OK ass hole...I was asking a question

 

Wow! Not necessary and totally unprofessional.  I second what Larry said.