I was hoping to take advantage of the increased limits on 401k loans, which allow one to take a loan up to the lesser of $100,000 or 100% of the account balance. Another nice kicker would be the current low interest rates.
Since I already have two outstanding loans, I was going to repay one loan, and then take a maximum loan. However a call to Fidelity (the custodian of my plan) revealed that while the above provision was put in place, there is another provision in the law that would prohibit me from doing as I planned.
IRS rules state that:
"A participant may have more than one outstanding loan from the plan at a time. However, any new loan, when added to the outstanding balance of all of the participant’s loans from the plan, cannot be more than the plan maximum amount. In determining the plan maximum amount in that case, the $50,000 is reduced by the difference between the highest outstanding balance of all of the participant’s loans during the 12-month period ending on the day before the new loan and the outstanding balance of the participant’s loans from the plan on the date of the new loan."
Apparently the CARES act didn't address that restriction, so the $50,000 number in that language remains in place. This means that anyone that had an outstanding loan within the last 12 months cannot benefit from the CARES act increased loan provisions, due the language about outstanding loans putting the max back at $50,000! I wonder if there is anywhere to appeal to in order to have this fixed. Any suggestions?
One other alternative I discovered was taking a penalty-free withdrawal that can be repaid back into the plan within 3 years without owing any tax or penalty on the amounts repaid. Essentially this gives me the option to take a 3-year interest-free loan (I would have preferred a 5 year low rate loan - if the issue above could be fixed, but this is a second-best option). I inquired about the mechanics of the repayment, but they said they are still working that out.
Does anyone else have any information or insights on any of this?
