Question

Vance has a vested account balance in his employer-sponsored qualified profit sharing plan of $40,000. He has two years of service with his employer and the plan follows the least generous graduated vesting schedule permitted for a profit sharing plan under PPA 2006. If Vance has an outstanding loan balance within the prior 12 months of $15,000, what is the maximum loan Vance could take from this qualified plan, assuming the plan permitted loans?
(a) $5,000.
(b) $20,000.
(c) $40,000.
(d) $50,000.

Answer 1

Answer:

option (a) $5,000

Explanation:

For a vested account holder, the maximum loan an individual can take is the lesser of $50,000 or 50% of their balance in the vested account.

Here,

The maximum loan = 50% of $40,000

= $20,000  

also,

Vance has an outstanding loan balance = $15,000 within 12 months

Therefore,

The maximum loan available = maximum loan - Outstanding within 12 months

= $20,000 - $15,000

= $5,000

Hence,

The correct answer is option (a) $5,000