If I just paid off my 401k loan, how much will a new loan be with $47K vested and a high loan balance of $8600 in the past year?

[fusco98036]

I have a vested balance of $47.9K.  I have a zero loan balance as of today.  My highest loan balance was $8700 in the past 12 months.  Do I deduct the $8700 from 50% of my vested balance or from $50K per the new IRS guidelines?

[Opus 17 · Accepted solution]

401(k) loans don't affect your tax return unless you default on your payments.  Since this is a tax forum, I don't think we can help with your question.  If you want to know your eligibility to take a loan, or the largest loan your plan will allow, you will need to ask the plan administrator.

[dmertz]

I'm not aware of any "new" guidelines with regard to this.  I believe that the present version of the regulations in CFR 1.72(p)-1 was established in 2004.

See section 72(p)(2)(A):  https://www.law.cornell.edu/uscode/text/26/72

and CFR 1.72(p)-1 Q&A-20:   https://www.law.cornell.edu/cfr/text/26/1.72(p)-1

I think that the highest outstanding loan balance in the past year only comes into play if the balance to your credit is not the limiting factor.  Your new loan in this case would simply be limited to 50% of the balance to your credit, giving you a maximum new loan amount of $23,950.

Even if you were instead refinancing an existing loan that had a highest outstanding loan balance of $8,700 in the past year, I still don't think that the total of the new loan plus the outstanding balance of the old loan not exceeding $50,000 - $8,700 = $41,300 would come into plan since the account balance to your credit is not high enough.  Your refinance would simply not be permitted to bring your outstanding balance to more than $23,950.  Also, your repayment terms would need to be such that your repayments still pay off the remaining portion of the original loan amount within the originally required timeframe.

Your plan administrator is the one responsible for enforcing this, so ask them.

[SweetieJean]

The maximum amount that the plan CAN permit as a loan is (1) the greater of $10,000 or 50% of your vested account balance, OR (2) $50,000, whichever is less. But, as demertz said, that's up to the plan itself.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans">https://www.irs.gov/reti...>

[dmertz]

To specifically answer the original question, section 72(p)(2)(A) requires that the $50,000 limit, not the balance to your credit, be reduced by your highest outstanding loan balance during the past year.