LOAN CALCULATOR

When calculating participant loans, please keep the following requirements in mind:
   

1. Maximum loan amount is $50,000 or, if less, ½ of the participant’s vested account balance. (The IRS allows for loans of $10,000 or less even if such amount is more than ½ of the participant’s vested account balance. However, the DOL allows that only ½ of the participant’s vested account balance may be used as collateral on a loan).
      
2. Loans must be repaid within five (5) years unless the loan is used to acquire a participant’s principal residence.
     
3. The repayment of the loan must use a substantially level amortization on principal and interest with payments made not less frequently than quarterly.
     
4. The loan must be an enforceable agreement which is set forth in writing and must set forth the amount of the loan, the term of the loan, and the repayment schedule.

Improper plan loans give rise to three distinct tax consequences. First, if a participant loan is a prohibited transaction because the loan does not meet the above criteria, the IRS imposes an excise tax ranging from 5% to 100% of the amount involved. Second, if a participant loan is secured by a participant’s benefit and is a prohibited transaction, the entire plan is subject to disqualification. Third, if a participant loan violates Internal Revenue Code Section 72(p), it will be deemed to be a premature taxable distribution.

Click here to go to the Loan Calculator