‘I’d prefer the money never hits 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?

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Dear Quentin,

I am in an interesting situation for which I need some help. My in-laws live with my wife and me and have been doing so for some time now. We initially moved in with him so that I could finish my degree (I did), and the arrangement worked for us.

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They went cross country with us after our son was born, and then went back after our daughter was born. Our son has certain needs, so it’s very rewarding to be around him.

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We pay mortgages and bills, and they do grocery shopping and some maintenance around the house. My mother-in-law works from home and my father-in-law is retired.

They also contributed to the down payment of our first house, and have always been very generous to us. Recently, they met with their financial advisor regarding their 401(k), and they were soon able to receive payments from it.

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,‘I’m afraid it will look like they are paying us rent, and we will have to declare that income.’,

Unbeknownst to us, they wanted to use that money to pay off our mortgage. Happy days for us, except we are really at a loss as to how to do it. They want to transfer an amount equal to our payment every month so that we can pay the principal.

I’m afraid it will look like they are paying us rent, and we will have to declare that income. My father-in-law thinks that since he has already paid taxes on it, we will not have to pay taxes.

I want them to pay directly to the bank – first of all, for the tax implications. I am very grateful that they are willing to do so, but since I have no agency on the funds, I would prefer that the money never come into our account.

am i grateful? How should we handle it? I feel very lucky to be in this situation, but it is already causing tension in the house and we need to find out as soon as possible.

grateful son-in-law

Dear Grateful,

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

Each in-law is allowed to give you $15,000 as a gift without counting their $11.7 million lifetime exemption from federal taxes. This increased to $16,000 the following year. You do not have to pay tax on that income.

Nor does it matter whether they put it in your checking account or directly into your mortgage account. When you take out a mortgage, the bank requires proof of income, but it is up to you to decide how the installments are to be paid.

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

If you or your wife want to further your education at some point, or if your children want to go to college, paying for your education and/or medical expenses is another way to give you tax-free money.

Your in-laws should make sure they have enough money for retirement and any unexpected medical expenses, and paying off your mortgage in installments may be the wisest strategy, given that none of us know. that what is in life.

Additionally, some tax experts say this is probably a good time to give gifts for elderly members of your family, given the potential increase in capital gains taxes by businesses and/or the Biden administration, such as certain assets.

Just make sure no wires are connected. Given that housing is the No. 1 expense for most families, it seems like a generous and kind offer that’s made in good faith, and should benefit you and your wife in the long term.

Not everyone is as lucky as you.

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

check out The Maniast Private Facebook Group, where we seek answers to life’s most thorny money issues. Readers write to me with all kinds of dilemmas. Post your questions, tell me what you’d like to learn more about, or peruse the latest Manifest column.

Dhani is sorry that he cannot answer the questions personally.

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