I wish I knew how to teach financial literacy to more people.
We have union guys at work that will get a retention bonus next pay period. It's something their boss has fought to get them for a while.
So now they are working less hours so they "don't go into the next tax bracket"
I need somewhere to vent.
At this point I honestly don't think there is a solution for it. It's motivated reasoning, mostly due to "taxes bad" just being the cultural zeitgeist. I've had this conversation periodically with a former classmate at Uni. We both had to pass calculus to graduate. It's not that he can't do the math it's that he doesn't want to do the math; he just wants to complain about the government.
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thatassemblyguyJanitor of Technical Debt.Registered Userregular
I wish I knew how to teach financial literacy to more people.
We have union guys at work that will get a retention bonus next pay period. It's something their boss has fought to get them for a while.
So now they are working less hours so they "don't go into the next tax bracket"
I need somewhere to vent.
At this point I honestly don't think there is a solution for it. It's motivated reasoning, mostly due to "taxes bad" just being the cultural zeitgeist. I've had this conversation periodically with a former classmate at Uni. We both had to pass calculus to graduate. It's not that he can't do the math it's that he doesn't want to do the math; he just wants to complain about the government.
That's frustrating because it's the easiest math to do!
If I get $100 in the next tax bracket (assuming 22->24%), that means I still have (roughly, not accounting for FICA) $76 dollars I didn't have before. If I work to avoid getting that extra $100, then I'll have $0 more dollars.
I wish I knew how to teach financial literacy to more people.
We have union guys at work that will get a retention bonus next pay period. It's something their boss has fought to get them for a while.
So now they are working less hours so they "don't go into the next tax bracket"
I need somewhere to vent.
I mean is their boss not aware that they're thinking this way? Seems like an easy communication fix. But I don't know their relationship with their boss.
I can't speak to that industry in particular, but a common source of the misconception is going from big bonus -> owing a big chunk in April, due to it not having withholding applied the same way. In the 11 or so years I worked in California, I think every one of them the employer understood the withholding, when they did it at all. (One of them was a poster child case for the 1099 all the employees nightmare of 2001)
Getting a bonus and taking some time off work sounds right to me.
If it wouldn't get me fired, at the end of the year when we do raises and bonuses, I would much rather decrease my work hours by 10% than take a 10% raise.
Getting a bonus and taking some time off work sounds right to me.
If it wouldn't get me fired, at the end of the year when we do raises and bonuses, I would much rather decrease my work hours by 10% than take a 10% raise.
I'd take either compared to my likely single digit COLA.
I can't speak to that industry in particular, but a common source of the misconception is going from big bonus -> owing a big chunk in April, due to it not having withholding applied the same way. In the 11 or so years I worked in California, I think every one of them the employer understood the withholding, when they did it at all. (One of them was a poster child case for the 1099 all the employees nightmare of 2001)
The other aspect is that often (and rightfully so) HR teams will withhold from bonus checks at a higher rate than salary checks, sometimes as much as 40%+. People see that though and just get irate about taxes, not understanding that isn't the amount that is actually taxed.
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ButtersA glass of some milksRegistered Userregular
Necroing this thread for some 401(k) withdrawal questions. Recently I was burdened with a $22,000 sewer repair bill that I was NOT prepared to pay out of pocket. I asked my father for financial advice and he said there should be options where I can withdrawal from my retirement plan without paying a massive penalty if I can prove it is to go toward some kind of "hardship" as opposed to just some normal bill or purchase.
I spoke to a representative at the outfit that manages my current 401(k) and they told me they can't answer any questions on taxes or penalties for early withdrawal and that I would need to talk with an accountant to know what I am liable for. The "Hardship Withdrawal Request" form is just if I want to take out more than what is currently allowed.
My question is this: is my dad full of shit and I can't avoid penalties if I take out of my 401(k) or am I just not looking in the right places to pull this off? I am trying to avoid 9.99% interest if I pay this $22k off over the next 60 months, but obviously I don't want to take out of retirement funds if I'm going to get 70 cents on the dollar when the IRS is done with me.
Necroing this thread for some 401(k) withdrawal questions. Recently I was burdened with a $22,000 sewer repair bill that I was NOT prepared to pay out of pocket. I asked my father for financial advice and he said there should be options where I can withdrawal from my retirement plan without paying a massive penalty if I can prove it is to go toward some kind of "hardship" as opposed to just some normal bill or purchase.
I spoke to a representative at the outfit that manages my current 401(k) and they told me they can't answer any questions on taxes or penalties for early withdrawal and that I would need to talk with an accountant to know what I am liable for. The "Hardship Withdrawal Request" form is just if I want to take out more than what is currently allowed.
My question is this: is my dad full of shit and I can't avoid penalties if I take out of my 401(k) or am I just not looking in the right places to pull this off? I am trying to avoid 9.99% interest if I pay this $22k off over the next 60 months, but obviously I don't want to take out of retirement funds if I'm going to get 70 cents on the dollar when the IRS is done with me.
Does your work/401k provider offer loans against your 401k balance? Mine has something like that where you can borrow from your 401k and then pay it back with interest. Probably better interest than 10% as well
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ButtersA glass of some milksRegistered Userregular
edited November 2023
The loan from my 401(k) rate is 9.5% which is not that much better and my HELOC with the recent interest rate hikes I think is around 9% now as well. Not to be snippy, but I need to know if withdrawal with minimum penalty is a thing or not. I have looked at all the other options and there isn't a whole lot of difference among them.
The loan from my 401(k) rate is 9.5% which is not that much better and my HELOC with the recent interest rate hikes I think is around 9% now as well. Not to be snippy, but I need to know if withdrawal with minimum penalty is a thing or not. I have looked at all the other options and there isn't a whole lot of difference among them.
I am not a certified/licensed Tax Advisor/Tax Person, and your best option for legit advice is to get the 401k Plan Document and hand it to one.
1. Under what circumstances can a participant get a hardship distribution from a retirement plan?
A retirement plan may, but is not required to, provide for hardship distributions. Many plans that provide for elective deferrals provide for hardship distributions. Thus, 401(k) plans, 403(b) plans, and 457(b) plans may permit hardship distributions.
If a 401(k) plan provides for hardship distributions, it must provide the specific criteria used to make the determination of hardship. Thus, for example, a plan may provide that a distribution can be made only for medical or funeral expenses, but not for the purchase of a principal residence or for payment of tuition and education expenses. In determining the existence of a need and of the amount necessary to meet the need, the plan must specify and apply nondiscriminatory and objective standards.
(Reg. Section 1.401(k)-1(d)(3)(i))
2. What is the IRS definition of hardship for a 401(k) plan?
For a distribution from a 401(k) plan to be on account of hardship, it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need. The need of the employee includes the need of the employee's spouse or dependent. (Reg. Section 1.401(k)-1(d)(3)(ii)(B))
...
Whether a need is immediate and heavy depends on the facts and circumstances. Certain expenses are deemed to be immediate and heavy, including: ... (6) certain expenses for the repair of damage to the employee's principal residence that would qualify for the casualty deduction under IRC Section 165 (but without regard to the new limitations for casualty losses added by Section 165(h)(5));
My take away from this is that 1) The IRS might consider the withdraw a hardship withdraw because it is an expense for the repair of principal residence damage - PLEASE NOTE the FAQ uses the language "certain expenses" and points to Section 165 for Casualty deduction, so the sewer repair bill might not be included. 2) The 401k plan documentation itself (not the form you fill out, but the "this is the legal definition of our plan" that the Board approves and puts up in their SEC filings) will have a concise list of approved reasons to do a hardship withdraw.
However, if the money is considered a hardship withdraw, consider the following:
However, you should know these consequences before taking a hardship distribution:
The amount of the hardship distribution will permanently reduce the amount you’ll have in the plan at retirement. You must pay income tax on any previously untaxed money you receive as a hardship distribution.
You may also have to pay an additional 10% tax, unless you're age 59½ or older or qualify for another exception.
You may not be able to contribute to your account for six months after you receive the hardship distribution.
This reads to me that you still have to pay income tax on the withdraw, and might not be able to contribute again for 6 months (probably depends on the plan, and what definitions are in there).
For the 401k Loan,
Loans are not taxable distributions unless they fail to satisfy the plan loan rules of the regulations with respect to amount, duration and repayment terms, as described above. In addition, a loan that is not paid back according to the repayment terms is treated as a distribution from the plan and is taxable as such.
So, taking a loan, as long as the company's loan plan is correctly structured, and you're making payments on time, won't be taxable.
Also, generally (read, re-read, and read again your employers plan with the loan rules in it), the interest you're paying actually goes into YOUR 401k.
A big negative against taking a loan: If you leave your employer/job (voluntarily, or fired) you generally have to pay back the outstanding balance of the loan right away, and if you can't the remaining balance is considered a distribution (taxes and penalties happen).
So all things considered, if you have the option to take a loan from the 401k (not all plans allow loans), that might be a better option, if you feel like you can pay it all back on time to avoid the bad penalties, and aren't looking to move jobs until you can pay it back.
thatassemblyguy on
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ButtersA glass of some milksRegistered Userregular
Thank you for this response. I did a little more digging myself and it does sound like my dad was living in a fantasy world WRT penalty-free withdrawals. You do raise a very good point about paying interest to myself instead of someone else that I didn't think about myself. Maybe that is the best route. If I leave my employer and need to pay it back in one setting I could always go back to the HELOC for that.
i think they will refuse to tell if you're getting a tax penalty because they don't control that, they basically approve it as a hardship withdrawal which (generally) doesn't get the 10% penalty, but there are circumstances where the penalty will still apply
this is going to be an annoying case of digging through the IRS docs to try and figure it out yourself. You probably won't need to pay the penalty but I'm just some guy on the internet.
Worst case? Play dumb until tax time. IRS is pretty happy to put you on a payment plan as long as you're paying, and interest on $2k in back taxes is a lot nicer than interest on $20k.
life's a game that you're bound to lose / like using a hammer to pound in screws
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
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thatassemblyguyJanitor of Technical Debt.Registered Userregular
Thank you for this response. I did a little more digging myself and it does sound like my dad was living in a fantasy world WRT penalty-free withdrawals. You do raise a very good point about paying interest to myself instead of someone else that I didn't think about myself. Maybe that is the best route. If I leave my employer and need to pay it back in one setting I could always go back to the HELOC for that.
No worries. I definitely understand the stress of needing to understand various financial trade-offs in a pinch.
Just double and triple check the 401(k) plan documents to be sure that a loan is provided (they're not required, but they are common).
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ButtersA glass of some milksRegistered Userregular
According to my 401(k) service provider's website this does not qualify has exempt from the 10% additional penalty.
According to my 401(k) service provider's website this does not qualify has exempt from the 10% additional penalty.
That page is just listing examples of hardships that could be in a specific plan. You have to look at the specific plan documents for your employer's 401k to see what scenarios are actually considered hardships.
I want to help a family member afford a home. But I don't ever want to be in a position where I am responsible for collecting debt or rent from a family member. I won't live in the home with them at all. What's the most financially reasonable way to help? I was thinking a joint ownership with the ability to buy me out once their cash flow improves, but that's of course financially risky. I would love a 10% yearly ROI but that's not gonna happen. I can accept up to a -5% yearly cost of investment - it will be soul crushing but less soul crushing than being a landlord
Marty: The future, it's where you're going? Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.
I want to help a family member afford a home. But I don't ever want to be in a position where I am responsible for collecting debt or rent from a family member. I won't live in the home with them at all. What's the most financially reasonable way to help? I was thinking a joint ownership with the ability to buy me out once their cash flow improves, but that's of course financially risky. I would love a 10% yearly ROI but that's not gonna happen. I can accept up to a -5% yearly cost of investment - it will be soul crushing but less soul crushing than being a landlord
I don't think it's possible to square these two things.
The closest setup I could think of would be to give them a loan for the down payment at 0% interest with the understanding that you get the full value of your deposit plus any profit made on the sell price unless they buy you out.
If you want to get your money back eventually, that's collecting a debt, no matter how you spin it. The only way to avoid that is to actually just give them money and expect no repayment.
If you want to get your money back eventually, that's collecting a debt, no matter how you spin it. The only way to avoid that is to actually just give them money and expect no repayment.
The way I rationalize it, if we do a joint home loan, and one party won't pay, the bank will simply repossess the home, so the bank is the collector and responsible for enforcement of repayment. Then the bank can be the bad guy and we're always going to be in the same boat. It's stupid, but the whole aversion to being a lender is the implication that I can just forgive the debt and don't do so because I value money over family. Being co-debtors to a disinterested third party may absolve this implication. It's all psychological and stupid, but I don't want to do nothing and don't want to blindly jump into a soap opera.
I like the deposit idea but am wondering how that is different from owning "shares" of a home. If there is no practical distinction, I'm wondering if there is already an instrument I can research and implement
At worst, I can give a gift - but since that is 100% loss it will be quite limited in amount as I still need to keep my head above water. Maybe moonlighting
Paladin on
Marty: The future, it's where you're going? Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.
I'm not sure the mechanics of such a thing but even if it works, your family member is likely to interpret it as a sign of distrust right out the gate. Your relationship with them won't come out clean if they have a bad experience with your enforcer.
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ButtersA glass of some milksRegistered Userregular
It sounds like you are doing well enough for yourself to feel like you should be able to help someone you care about, but not well enough to be a significant benefactor. A joint home loan going south sounds like it could be very dangerous to your credit and the consequences of foreclosure/repossession can be devastating. If the home goes REO and sells at auction for less than what is owed, I am pretty sure all co-signers would be liable to make up the difference.
Best advice is only "lend" an amount you are certain won't compromise your financial well being under the assumption you will receive nothing in return. You aren't a bank and it sounds like this family member (good-natured as they may be) has financial risks and it would be unwise to officially co-sign anything with them.
If you want to get your money back eventually (with or without interest) but not be in a position where you’re likely to be asking them for money they don’t have, something some housing assistance programs will do is to loan them the money as a second-position mortgage, with no monthly payments, to be repaid in full on the sale of the house. That way they don’t have payments to make, they don’t owe you anything until they sell the house, and when the debt does get called in, the closing attorney will just deduct the payoff from the sale proceeds before it goes into the seller’s hands - as long as the house is eventually sold for a reasonable price, they should reliably have the money for the repayment because it’ll only happen when they’ve just sold a house, and you shouldn’t have to hound them for it, because the closing attorney/title office has an obligation to settle the mortgages before they give the seller the remainder of the sale proceeds.
There are a whole boatload of conditional caveats there - a major one is that their mortgage lender may or may not be on board with a subordinate mortgage and you’d need to sort that out with them - but it might be something to look into.
If you want to get your money back eventually (with or without interest) but not be in a position where you’re likely to be asking them for money they don’t have, something some housing assistance programs will do is to loan them the money as a second-position mortgage, with no monthly payments, to be repaid in full on the sale of the house. That way they don’t have payments to make, they don’t owe you anything until they sell the house, and when the debt does get called in, the closing attorney will just deduct the payoff from the sale proceeds before it goes into the seller’s hands - as long as the house is eventually sold for a reasonable price, they should reliably have the money for the repayment because it’ll only happen when they’ve just sold a house, and you shouldn’t have to hound them for it, because the closing attorney/title office has an obligation to settle the mortgages before they give the seller the remainder of the sale proceeds.
There are a whole boatload of conditional caveats there - a major one is that their mortgage lender may or may not be on board with a subordinate mortgage and you’d need to sort that out with them - but it might be something to look into.
That's interesting. I don't really understand it, so I'll look into it - if you have examples of housing assistance programs I can contact to learn more about the process, I'd really appreciate it, but no pressure.
I would like to know if I actually can make a second mortgage without having to charge interest anyway as a private lender (as the IRS taxes based on the federal rate whether or not you charge it, I believe) or risk qualifying as a gift and being taxed to pointlessness anyway.
Marty: The future, it's where you're going? Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.
If you want to get your money back eventually (with or without interest) but not be in a position where you’re likely to be asking them for money they don’t have, something some housing assistance programs will do is to loan them the money as a second-position mortgage, with no monthly payments, to be repaid in full on the sale of the house. That way they don’t have payments to make, they don’t owe you anything until they sell the house, and when the debt does get called in, the closing attorney will just deduct the payoff from the sale proceeds before it goes into the seller’s hands - as long as the house is eventually sold for a reasonable price, they should reliably have the money for the repayment because it’ll only happen when they’ve just sold a house, and you shouldn’t have to hound them for it, because the closing attorney/title office has an obligation to settle the mortgages before they give the seller the remainder of the sale proceeds.
There are a whole boatload of conditional caveats there - a major one is that their mortgage lender may or may not be on board with a subordinate mortgage and you’d need to sort that out with them - but it might be something to look into.
That's interesting. I don't really understand it, so I'll look into it - if you have examples of housing assistance programs I can contact to learn more about the process, I'd really appreciate it, but no pressure.
I would like to know if I actually can make a second mortgage without having to charge interest anyway as a private lender (as the IRS taxes based on the federal rate whether or not you charge it, I believe) or risk qualifying as a gift and being taxed to pointlessness anyway.
I'd talk to a good Loan Officer or Mortgage Broker first about their loan options; most lenders won't lend a primary mortgage if there's a lien or 2nd mortgage such as that. As far as gifting goes, it takes quite a large gift to actually qualify as taxable; this is also something you should consult a professional CPA or financial advisor about. They'd probably have alot of good advise for this situation.
StarZapper on
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firewaterwordSatchitanandaPais Vasco to San FranciscoRegistered Userregular
The federal gift tax thing is not really worth thinking about - I think the annual exclusion for this year is like 18k and the lifetime limit is something wild like 13mil. Essentially not a (Federal) issue for most folks.
The federal gift tax thing is not really worth thinking about - I think the annual exclusion for this year is like 18k and the lifetime limit is something wild like 13mil. Essentially not a (Federal) issue for most folks.
Yeah but for like a $40k down-payment gift you can get hit? Maybe?
Marty: The future, it's where you're going? Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.
The federal gift tax thing is not really worth thinking about - I think the annual exclusion for this year is like 18k and the lifetime limit is something wild like 13mil. Essentially not a (Federal) issue for most folks.
Yeah but for like a $40k down-payment gift you can get hit? Maybe?
18k per giver/recipient combo. If you give it to a married couple it's then 36k. If 1 married couple gives to another, it's 72k. All of these are annual limits. If these amounts are exceeded the giver just needs to file a form, as it reduces the lifetime limit mentioned above.
The federal gift tax thing is not really worth thinking about - I think the annual exclusion for this year is like 18k and the lifetime limit is something wild like 13mil. Essentially not a (Federal) issue for most folks.
Yeah but for like a $40k down-payment gift you can get hit? Maybe?
Nah
The main issue is "seasoning". The lender on a purchase gets up your ass for any money that isnt from your W2 job and hasnt sat for 6+ months. All incoming funds need explanation and a paper trail.
It isnt a huge deal or anything, but some lenders will insist on the giver showing THEIR account statement with the gift or some such.
Ah, ok. Never gave a large lump sum before so I didn't know how that worked.
Marty: The future, it's where you're going? Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.
Posts
At this point I honestly don't think there is a solution for it. It's motivated reasoning, mostly due to "taxes bad" just being the cultural zeitgeist. I've had this conversation periodically with a former classmate at Uni. We both had to pass calculus to graduate. It's not that he can't do the math it's that he doesn't want to do the math; he just wants to complain about the government.
That's frustrating because it's the easiest math to do!
If I get $100 in the next tax bracket (assuming 22->24%), that means I still have (roughly, not accounting for FICA) $76 dollars I didn't have before. If I work to avoid getting that extra $100, then I'll have $0 more dollars.
*facepalm*
I mean is their boss not aware that they're thinking this way? Seems like an easy communication fix. But I don't know their relationship with their boss.
If it wouldn't get me fired, at the end of the year when we do raises and bonuses, I would much rather decrease my work hours by 10% than take a 10% raise.
I'd take either compared to my likely single digit COLA.
The funny part about the comment is they think it applies to that particular pay period and not the year.
The other aspect is that often (and rightfully so) HR teams will withhold from bonus checks at a higher rate than salary checks, sometimes as much as 40%+. People see that though and just get irate about taxes, not understanding that isn't the amount that is actually taxed.
I spoke to a representative at the outfit that manages my current 401(k) and they told me they can't answer any questions on taxes or penalties for early withdrawal and that I would need to talk with an accountant to know what I am liable for. The "Hardship Withdrawal Request" form is just if I want to take out more than what is currently allowed.
My question is this: is my dad full of shit and I can't avoid penalties if I take out of my 401(k) or am I just not looking in the right places to pull this off? I am trying to avoid 9.99% interest if I pay this $22k off over the next 60 months, but obviously I don't want to take out of retirement funds if I'm going to get 70 cents on the dollar when the IRS is done with me.
Does your work/401k provider offer loans against your 401k balance? Mine has something like that where you can borrow from your 401k and then pay it back with interest. Probably better interest than 10% as well
I am not a certified/licensed Tax Advisor/Tax Person, and your best option for legit advice is to get the 401k Plan Document and hand it to one.
Below I have added some of the research I would do prior to talking to my Tax Person to get an idea of what path I'd likely take.
For the Hardship Withdraw (from the IRS: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-hardship-distributions):
My take away from this is that 1) The IRS might consider the withdraw a hardship withdraw because it is an expense for the repair of principal residence damage - PLEASE NOTE the FAQ uses the language "certain expenses" and points to Section 165 for Casualty deduction, so the sewer repair bill might not be included. 2) The 401k plan documentation itself (not the form you fill out, but the "this is the legal definition of our plan" that the Board approves and puts up in their SEC filings) will have a concise list of approved reasons to do a hardship withdraw.
However, if the money is considered a hardship withdraw, consider the following:
https://www.irs.gov/retirement-plans/401k-plan-hardship-distributions-consider-the-consequences
This reads to me that you still have to pay income tax on the withdraw, and might not be able to contribute again for 6 months (probably depends on the plan, and what definitions are in there).
For the 401k Loan,
From the IRS: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans
So, taking a loan, as long as the company's loan plan is correctly structured, and you're making payments on time, won't be taxable.
Also, generally (read, re-read, and read again your employers plan with the loan rules in it), the interest you're paying actually goes into YOUR 401k.
A big negative against taking a loan: If you leave your employer/job (voluntarily, or fired) you generally have to pay back the outstanding balance of the loan right away, and if you can't the remaining balance is considered a distribution (taxes and penalties happen).
So all things considered, if you have the option to take a loan from the 401k (not all plans allow loans), that might be a better option, if you feel like you can pay it all back on time to avoid the bad penalties, and aren't looking to move jobs until you can pay it back.
https://www.irs.gov/retirement-plans/401k-plan-hardship-distributions-consider-the-consequences
i think they will refuse to tell if you're getting a tax penalty because they don't control that, they basically approve it as a hardship withdrawal which (generally) doesn't get the 10% penalty, but there are circumstances where the penalty will still apply
this is going to be an annoying case of digging through the IRS docs to try and figure it out yourself. You probably won't need to pay the penalty but I'm just some guy on the internet.
Worst case? Play dumb until tax time. IRS is pretty happy to put you on a payment plan as long as you're paying, and interest on $2k in back taxes is a lot nicer than interest on $20k.
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
No worries. I definitely understand the stress of needing to understand various financial trade-offs in a pinch.
Just double and triple check the 401(k) plan documents to be sure that a loan is provided (they're not required, but they are common).
That page is just listing examples of hardships that could be in a specific plan. You have to look at the specific plan documents for your employer's 401k to see what scenarios are actually considered hardships.
I want to help a family member afford a home. But I don't ever want to be in a position where I am responsible for collecting debt or rent from a family member. I won't live in the home with them at all. What's the most financially reasonable way to help? I was thinking a joint ownership with the ability to buy me out once their cash flow improves, but that's of course financially risky. I would love a 10% yearly ROI but that's not gonna happen. I can accept up to a -5% yearly cost of investment - it will be soul crushing but less soul crushing than being a landlord
Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.
I don't think it's possible to square these two things.
The closest setup I could think of would be to give them a loan for the down payment at 0% interest with the understanding that you get the full value of your deposit plus any profit made on the sell price unless they buy you out.
The way I rationalize it, if we do a joint home loan, and one party won't pay, the bank will simply repossess the home, so the bank is the collector and responsible for enforcement of repayment. Then the bank can be the bad guy and we're always going to be in the same boat. It's stupid, but the whole aversion to being a lender is the implication that I can just forgive the debt and don't do so because I value money over family. Being co-debtors to a disinterested third party may absolve this implication. It's all psychological and stupid, but I don't want to do nothing and don't want to blindly jump into a soap opera.
I like the deposit idea but am wondering how that is different from owning "shares" of a home. If there is no practical distinction, I'm wondering if there is already an instrument I can research and implement
At worst, I can give a gift - but since that is 100% loss it will be quite limited in amount as I still need to keep my head above water. Maybe moonlighting
Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.
Best advice is only "lend" an amount you are certain won't compromise your financial well being under the assumption you will receive nothing in return. You aren't a bank and it sounds like this family member (good-natured as they may be) has financial risks and it would be unwise to officially co-sign anything with them.
There are a whole boatload of conditional caveats there - a major one is that their mortgage lender may or may not be on board with a subordinate mortgage and you’d need to sort that out with them - but it might be something to look into.
That's interesting. I don't really understand it, so I'll look into it - if you have examples of housing assistance programs I can contact to learn more about the process, I'd really appreciate it, but no pressure.
I would like to know if I actually can make a second mortgage without having to charge interest anyway as a private lender (as the IRS taxes based on the federal rate whether or not you charge it, I believe) or risk qualifying as a gift and being taxed to pointlessness anyway.
Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.
I'd talk to a good Loan Officer or Mortgage Broker first about their loan options; most lenders won't lend a primary mortgage if there's a lien or 2nd mortgage such as that. As far as gifting goes, it takes quite a large gift to actually qualify as taxable; this is also something you should consult a professional CPA or financial advisor about. They'd probably have alot of good advise for this situation.
Yeah but for like a $40k down-payment gift you can get hit? Maybe?
Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.
18k per giver/recipient combo. If you give it to a married couple it's then 36k. If 1 married couple gives to another, it's 72k. All of these are annual limits. If these amounts are exceeded the giver just needs to file a form, as it reduces the lifetime limit mentioned above.
Nah
The main issue is "seasoning". The lender on a purchase gets up your ass for any money that isnt from your W2 job and hasnt sat for 6+ months. All incoming funds need explanation and a paper trail.
It isnt a huge deal or anything, but some lenders will insist on the giver showing THEIR account statement with the gift or some such.
Doc: That's right, twenty five years into the future. I've always dreamed on seeing the future, looking beyond my years, seeing the progress of mankind. I'll also be able to see who wins the next twenty-five world series.