We administer a 401(k) Plan that permits both participant loans and Roth 401(k) deferrals. The current loan policy does not allow for loans to be taken from the Roth money source.

I'm wondering, though, in this plan's case is the Roth 401(k) deferral account still taken into consideration when calculating the maximum available loan or is it excluded since we are excluding the Roth 401(k) deferral money type from loans? Or do we simply define this in our loan policy and apply it uniformly to all participants? The plan document does not say one way or the other.

For example, let's say a participant has a $10,000 account balance consisting of $6,000 is Roth 401(k) deferrals and $4,000 in pre-tax 401(k) deferrals. Is the maximum loan amount $2,000 or is it $4,000? Or what about if the account balance is $10,000 consisting of $6,000 in pre-tax deferrals and $4,000 in Roth 401(k) deferrals, is the maximum loan amount $5,000 or $3,000?

Any input would be greatly appreciated.

Thanks!

My thoughts:
1) does the wording of the exclusion of Roth from loans more clearly apply to loan distributions or to the entire processing of loans?
2) does the plan or loan policy define "account balance" as it would pertain to the loan calculation?
(Remember, you read it as an average prudent person would read it, don't stretch to infer any meaning that's not reasonably evident.)

If the exclusion is in the context of the distribution of funds and if "account balance" is undefined or does not clearly exclude Roth, then use the full balance for applying the 50% limitation. So the lesser of 50% of total balance or 100% of non-excluded funds.

That's how I see it.