Chapter 10 - Plan Loans

Question 1

Loans and Parties in Interest

Answer 1

Loans are for Parites in Interest, meaning employees. Not former employees or beneficiaries (they are not parties in interest)

Question 2

Loan Worksheet

Answer 2

Part A

1) Maximum statutory loan amount = $50,000
2) Highest outstanding loan balance for 12 months ending on the date new loan is made
3) Current outstanding loan balance
4) Lesser of 3 or 2, if the answer doesn’t make sense, subtract 3 from 2
5) Reduced maximum statutory limit (subtract 4 from 1)

Part B

6) Statutory limit $10,000 (not applicable)
7) 50% of participant’s vested balance
8) Greater of 6 or 7

New Loan Limit

9) Lesser of 5 or 8
10) Current outstanding loan balance
11) Maximum new loan amount (subtract 10 from 9)
12) Current vested balance less outstanding loan balance
13) Regulatory amount available for loan (lesser of 11 or 12)

Question 3

Deemed Distribution

Answer 3

Not elegible for a rollover

A deemed distribution may be subject to the 10% additional income tax on early distributions.

A deemed distribution is reported on Form 1099-R as a taxable event.

A deemed distribution generally has no withholding requirement.

A deemed distribution does not eradicate the outstanding loan obligation.