“I would prefer that the money never reach our account”: my in-laws live with my wife and me. They want to use their 401 (k) to pay off our mortgage. What should we do?


Dear Quentin,

I am in an interesting position that I need help with. My in-laws live with my wife and I and have been for some time. We moved in with them first so I could finish my degree (I did), and the arrangement worked for us.

They crossed the country with us after the birth of our son, then returned after the birth of our daughter. Our son has special needs, so it is very beneficial to have them by his side.

We pay the mortgage and the bills, and they do a lot of the shopping and some of the upkeep of the house. My mother-in-law works from home and my father-in-law is retired.

They also helped with the down payment on our first home and have always been very generous to us. Recently, they met with their financial advisor about their 401 (k), and they will soon be able to start receiving payments for it.

“I’m afraid he looks like he’s paying us rent and we have to report that income.”

Unbeknownst to us, they want to use this money to pay off our mortgage. Happy days for us, except we don’t know how to actually do it. They want to transfer an amount equal to our payment each month, so that we can pay off the principal.

I’m afraid it looks like they’re paying us rent and we have to report that income. My father-in-law thinks that since they already paid taxes on it, we wouldn’t have to pay taxes.

I want them to make the payment directly to the bank. First of all, for the tax implications. I am very grateful that they are willing to do this, but since I have no agency on the funds, so I would prefer that the money never reach our account.

Am I ungrateful? How should we handle this situation? I feel very lucky to be in this situation, but it is already causing stress in the household and we need to find out as soon as possible.

Grateful stepson

Dear grateful,

You are not ungrateful. You are careful. Its good. There is no reason for it to cause stress. Your in-laws want to give you money for your mortgage without any punitive tax consequences, and there is an easy way to do it.

Each in-laws is allowed to give you $ 15,000 each as a gift without counting towards their lifetime $ 11.7 million exemption from federal taxes. This will increase to $ 16,000 next year. You do not have to pay taxes on this income.

It doesn’t matter if they put it in your checking account or directly in your mortgage account. When you take out a mortgage, the bank requires proof of income, but it’s up to you to decide how the installments are paid.

When you take out a mortgage, the bank requires proof of income, but it’s up to you to decide how the installments are paid.

Paying money for your education and / or medical expenses is another way to give yourself tax-free money, if you or your wife at some point want to continue your education or if your children want to go. at University.

They need to make sure they have enough funds for retirement and unforeseen medical expenses, and paying off your mortgage in installments may be the smartest strategy, since no one knows what life throws at us.

Additionally, some tax experts say it’s probably a good time for older family members to give gifts, given the lower value of some assets like businesses and / or potential increases in income taxes. capital by the Biden administration.

Just make sure there are no conditions. Since housing is the # 1 expense for most families, this sounds like a generous and kind offer made in good faith, and should benefit you and your wife in the long run.

Not everyone is as lucky as you are.

You can email The Moneyist for any financial and ethical questions related to the coronavirus at [email protected], and follow Quentin Fottrell on Twitter.

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