During a recent IRS phone forum an IRS agent opined that prime plus 2% is a reasonable rate of interest for participant loans, implying that lower rates may not be reasonable. Another IRS agent clarified that, in determining what is a reasonable rate, plan administrators should ask whether it is possible for a participant to get a loan in the open market for less than prime plus 2%; if not, then prime plus 2% is a reasonable rate of interest.
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401(k) loan interest rates—prime +2%?
- Dow Lohnes PLLC
- USA
- November 3 2011
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Edward J. Willey III
Corporate Counsel
Huawei Technologies (USA)