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Practice Management

Tech Talk: 403(b) Second Loan Limits

Q. An employee of a k-12 public school who has a 403(b)(7) to which he contributes $1,800 per month and has a balance of $236,000, took out a loan from the account in 2017. The loan was for $35,000; he has paid the $11,000 balance of the loan. The employee has now applied for a loan from the 403(b) plan for $45,000, but the plan’s TPA told him that amount was over the limit for such a loan. Is that true?

A. The amount of a subsequent loan is the lesser of:

  1. $50,000 - $11,000 (the highest outstanding loan balance in the last 12 months) = $39,000*; or
  2. ½ of the vested balance (half of $236,000, or $118,000)**

* This may be less since it is reduced by the highest outstanding balance, which may be more than the $11,000, which was the payoff balance.
** This may be higher, although it is a moot point since there could be other vendors with other assets.

Therefore, it looks like a $45,000 second loan would not be available, since the most that could be given is $39,000.