401K Loan Confusion

[Andrew Sackville-West]

Bill Jacqmein wrote:
> Ive found a few posts from a couple of years ago but Im still having a 
> hard time understanding how a 401k loan should be accounted for.
> 
> Posts found
> http://www.gnucash.org/pipermail/gnucash-user/2002-July/004094.html
> http://lists.gnucash.org/pipermail/gnucash-user/2002-April/003720.html 
> <http://lists.gnucash.org/pipermail/gnucash-user/2002-April/003720.html>
> 
> Ive gotten there needs to be a liability account for the loan, expense 
> accounts for the principal and interest, income account for the 
> principal and interest (because essentially the money isnt really an 
> expense because it is going into an asset account.)

I don't think you need either of these expense or income accounts. 
you're just shifting money around your balance sheet... Okay, there's 
probably a mark-up on the interest that goes to the 401k company, and 
that would be an interest expense, but the rest of it is already 
yourmoney and its going from one of your accounts (say, checking) to 
another (the 401k). So you need an asset for your 401k, a sub-asset of 
the 401k for the loan principal. You should already have a sub-asset for 
your 401k for the cash assets of the 401k. your loan involves passing 
money from the 401k:cashasset to 401k:loan asset. so the net value of 
the 401k doesn't change. Then you need a liability for the loan which is 
the account you use to transfer money to your checking account when you 
make a draw. To make a payment, you have a transaction that moves money 
from your checking account to the loan liability. and a matching 
transaction from the 401k:loanasset to 401kj:cash asset to represent the 
transfer of money from the loan back to your 401k account. again, the 
401k net value doesn't change. in fact, your total balance shouldn't 
change from any of these events as its just your money sloshing around 
to and from different accounts. Of course, the loan payment is actually 
probably split between interest and principal. The interest portion is 
probably split again between your 401k and the bank... so your loan 
payment may look like this


loan payment		debit 	credit	
   checking		1003.00		/* total payment */
   loan liability	1000.00		/* principal payment */
   401k:cashasset	   2.00		/* your interest back to your 401k account */
   Interest exp.	   1.00			/* interest or other expenses the bank keeps */

meanwhile you need this too:

   401k:loanasset		1000.00 /* principal shifting from */
   401k:cashasset 1000.00		/* one part to other of 401k */


This is my understanding, and is predicated on the idea that the bank 
takes a cut from each payment for the pleasure of letting you use your 
money ;). IANAA.

hth

A

  What Im unsure of is
> how the flow should work from the deduction of the loan repayment from a 
> pay to it effecting the liability account, the expense accounts, income 
> accounts, and finally the 401K asset account.
> 
> A description of the account setup for a 401K loan would be most 
> appreciated or some additional explainations for the posts above are 
> equally welcome.
> 
> Thanks,
> 
>      Bill
> 
> 
> 
> 
> 
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