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What to consider before lending money to family and friends
When your best friend views your
nest egg as a source of start-up funds for his latest business venture, or your
nephew hits you up for a car loan, your first impulse may be to reach into your
bank account to help. But it's a fact that loans to family and friends often
end up straining both finances and relationships. As Shakespeare said,
"Loan oft loses both itself and friend." In other words, if you lend
money to friends, you often don't get paid back, and the friendship itself may
disintegrate.
It's best to consider a loan to
someone you love as an "arm's length" transaction. If you're
pondering such a loan, keep the following in mind:
* You can just say "no."
It's your money, after all. Do you really want to raid an emergency fund or dip
into your child's college account to finance a friend's business idea? Think
like a bank. It's reasonable to ask tough questions about the person's bank
accounts, potential sources of income, planned use of loan proceeds, and
spending habits before extending credit.
* Consider a gift. If you're
comfortable sharing your resources, you may want to provide a monetary gift
with no strings attached. In many cases, this is the best solution because
neither you nor your friend expect the money to be paid back. Unlike a loan, this
type of arrangement can forestall misunderstandings and hurt feelings later on.
Of course, you should not give money if doing so would unduly strain your own
finances.
* Formalize loans. If you decide to
lend more than a small amount to a friend or family member, it's generally best
to draft a written agreement. This can be as simple as filling out a promissory
note (available online or at office supply stores). Such forms spell out the
basic terms of the loan -- amount, interest rate, payback period -- and provide
some limited protection should you and the borrower end up in small claims
court. Another recent innovation is the use of direct lending (also called
social lending or peer-to-peer lending) websites to facilitate loans between
family and friends. For a fee, such sites can prepare loan documentation, send
payment reminders, issue regular reports, even facilitate electronic fund
transfers. If the loan involves a significant amount of money, check with your
attorney.
Remember: Many personal relationships
have been damaged when loans go awry. So proceed with caution.
Posted in general
Have you ever received an IRA distribution with the intention of “rolling it over” or depositing it into another IRA account but you missed the 60-day rollover rule?
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Under this rule, you're required to complete the rollover within 60 days of receiving the distribution. If you miss the deadline, tough luck, you have to report the distribution as income and perhaps pay a penalty. Ouch!
In the past, you had to request a special statement from the IRS to avoid that outcome. Now, the IRS says you may qualify for a waiver if you meet one out of eleven allowable reasons. Here we go:
1. Error was committed by your financial institution
2. Distribution check was misplaced and never cashed
3. Distribution was deposited into an account that you thought was an existing retirement plan
4. Your principal residence was severely damaged
5. A family member died
6. You or a family member was seriously ill
7. You went to jail
8. Restrictions were imposed by a foreign country
9. Postal error occurred
10. Distribution was due to IRS levy and then the proceeds was returned by the IRS
11. The party making the distribution delayed providing information that delayed the rollover
There you have it! So next time, if you missed the IRA 60-day rollover rule, please look into the eleven allowable reasons to get relief.
If you like to learn more, click the link lowermytaxnow.com and sign-in to receive my weekly blog.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.com.
Last Updated by Admin on 2016-09-08 09:36:38 PM