Loan FAQ for Participants
How much money can I borrow from my 401k?
Your loan cannot be greater than 50% of the vested account balance under the Plan. Additionally, the loan cannot exceed $50,000 minus the difference between the highest outstanding balance of loans in the past 12 months and the outstanding balance of loans from the Plan on the date the loan is made. Source of Funds: Your Participant Loan will be made on a prorated basis in accordance with your Plan’s Loan Procedures.
How long will my loan take to process?
Approved loans will be processed within five (5) business days of receipt of your request. Allow an additional five (5) business days for LT Trust to remit your loan proceeds based on the delivery method you requested on your online loan application (i.e. Wire, ACH or Check).
Do I have a legal obligation to repay the loan?
Yes, you acknowledge that endorsing and/or cashing the loan check or accepting electronically deposited loan proceeds (via Wire or ACH) you are accepting the terms of the Loan Promissory Note and it creates a legal obligation, on your part to repay this loan, and such obligation shall be binding.
How long of time may I have a loan?
General purpose loans must be paid back within 5 years of receiving the loan. If the Plan Loan Procedures allow, a Principle Residence loan may have a term greater than 5 years. Please refer to the Plan’s Loan Procedures.
Do I need to provide documentation if I request a Principle Residence Loan?
Yes, your Plan Administrator will require evidence of your intent to purchase your principle residence. Principle Residence Loans are only available for the first time purchase of your principle residence and cannot be issued in regard to home refinances, home improvements or purchases of non-principle residences.
May I combine multiple loans?
No
How do I pay my loan back?
Payments will be made only through payroll deduction every pay period. Principal and Interest payments will be reinvested in your account according to the investment elections in place at the time of receipt.
Can I make loan payments in amounts different than my amortized payment amount?
You must repay a loan in accordance with the repayment schedule. If your payments do not match your schedule repayment amount they will be processed in the following manner:
Underpayments: If a loan payment received is "less-than" the scheduled payment amount (P&I), the underpayment amount will be applied against the loan in the following order:
The underpayment amount will first be applied against the Interest (I) portion of the scheduled payment amount, until satisfied.
Any remaining underpayment amount will then be applied against the Principal (P) portion of the scheduled payment amount.
Overpayments: If a loan payment received is "greater-than" the scheduled payment amount (P&I), the overpayment amount will be applied against the loan in the following order:
The overpayment amount will be applied to pay "as many" of the regularly scheduled loan payment amounts (P&I) pursuant to the loan's amortization schedule, at the time the overpayment was received.
Any overpayment amount that cannot pay the "next" regularly scheduled loan payment amount (P&I), will be applied to pay the Principal (P) portion of that next regularly scheduled payment amount, until satisfied.
Any remaining overpayment amount will then be applied against the Interest (I) portion of that next regularly scheduled payment amount.
It is entirely your responsibility to ensure that timely loan payments are being deducted by your employer's payroll department to avoid the tax consequences associated with a defaulted plan loan.
Can I pay my loan off early?
Yes, you can pay the entire loan balance off in one lump sum payment. There are no prepayment penalties and no refunds on loan fees already paid. When paying off a loan early, it is your responsibility to coordinate with your Plan Sponsor and your payroll department, to account for any “off cycle” loan payment not subject to the loan amortization scheduled. For loan payoff instructions, please call the LT Trust Participant Call Center at (800) 831-8675.
How soon after paying my loan off can I take a new loan?
The Plan’s Loan Procedures will dictate the procedures for requesting subsequent loans. In general, and without any other restrictions, a new loan request can be requested as soon as the funds are available in the account. Factors that affect loan availability are minimum loan dollar amounts, maximum number of outstanding loan limitations and maximum outstanding loan balances in a 12 month period as described above in “How much money can I borrow from my 401k?”
What happens if I miss payments?
Your loan may go into default. A loan will be in default if a scheduled payment is not made by the end of the "cure period." The "cure period" is the payment period allowed by the Plan Administrator which will not extend beyond the last day of the calendar quarter following the calendar quarter during which the last scheduled installment payment was due and not paid. Upon default, the entire balance of the loan will be immediately due and the entire balance will be treated as a taxable distribution to you. Interest on the loan, however, will continue to accrue until you have a distributable event for purposes of determining any future loan availability.
In addition, your vested account balance may be reduced by the amount of the outstanding principal and interest on the loan. In other cases, this offset will not occur until you are entitled to receive benefits (for example, upon your termination of employment).
What happens if I go on a leave of absence?
If you go on a leave of absence you may be able to suspend loan repayments. In general, a leave of absence does not extend the terms of the loan and you may be required to make larger scheduled payments upon your return in order to pay the loan off by its due date. Please contact your Plan Sponsor and or Plan Administrator to understand your options.
What happens if I leave my employer?
The loan will become payable in full on your termination of employment. You may make a lump sum payment of the entire outstanding loan balance prior to electing your distribution. Any outstanding loan balance, at the time of distribution, will be treated as a taxable distribution to you.
If the loan is not paid off before the “cure period” described above, it will be deemed “in default” and the outstanding loan balance will be treated as a taxable distribution to you regardless if you have requested a distribution from the Plan.