TAXUPD Archives | Page 2 of 20

Q: What Is a Solo 401(k)?

A solo 401(k) or one-participant 401(k) plan is a traditional 401(k) that covers a business owner who has no employees or employs only their spouse. Simply, a Solo 401(k) allows you to save money for retirement from your self-employment or business income on a tax-advantaged basis.

Q: What Is a SEP IRA?

A SEP IRA or Simplified Employee Pension Plan is another option to consider if you’re looking for retirement plans for those self-employed. This tax-advantaged plan is available to any size business, including sole proprietorships with no employees, and its one of the easiest retirement plan to set up and maintain.

May

2024

Solo 401(k) vs SEP IRA: Key Differences and Considerations

Solo 401(k) vs SEP IRA: An In-Depth Comparison for Self-Employed Retirement Planning

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Self-employment has its perks, but an employer-sponsored retirement plan isn’t one of them. Opening a solo 401(k) or a Simplified Employee Pension Individual Retirement Account (SEP IRA) allows the self-employed to save for retirement while enjoying some tax advantages.

So, which is better for you? The answer can depend largely on whether your business has employees or operates as a sole proprietorship and which plan yields more benefits, in terms of contribution limits and tax breaks.

Weighing the features of a solo 401(k) vs. SEP IRA can make it easier to decide which one is more suited to your retirement savings needs.

Key Points

• Solo 401(k) allows tax-deductible contributions, employer contributions, employee contributions, and offers the option for Roth contributions and catch-up contributions.

• SEP IRA allows tax-deductible contributions, employer contributions, but does not allow employee contributions, Roth contributions, catch-up contributions, or loans.

• Withdrawals from traditional solo 401(k) plans and SEP IRAs are taxed in retirement.

• Solo 401(k) plans allow loans, while SEP IRAs do not.

• Solo 401(k) plans offer more flexibility and options compared to SEP IRAs.

Understanding the Basics

A solo 401(k) is similar to a traditional 401(k), in terms of annual contribution limits and tax treatment. A SEP IRA follows the same tax rules as traditional IRAs. SEP IRAs, however, typically allow a higher annual contribution limit than a regular IRA.

What Is a Solo 401(k)?

A solo 401(k) covers a business owner who has no employees or employs only their spouse. Simply, a Solo 401(k) allows you to save money for retirement from your self-employment or business income on a tax-advantaged basis.

These plans follow the same IRS rules and requirements as any other 401(k). There are specific solo 401(k) contribution limits to follow, along with rules regarding withdrawals and taxation. Regulations also govern when you can take a loan from a solo 401(k) plan.

A number of online brokerages offer solo 401(k) plans for self-employed individuals, including those who freelance or perform gig work. You can open a retirement account online and start investing, no employer other than yourself needed.

If you use a solo 401(k) to save for retirement, you’ll also need to follow some reporting requirements. Generally, the IRS requires solo 401(k) plan owners to file a Form 5500-EZ if it has $250,000 or more in assets at the end of the year.

What Is a SEP IRA?

A SEP IRA is another option to consider if you’re looking for retirement plans for the self-employed. This tax-advantaged plan is available to any size business, including sole proprietorships with no employees. SEP IRAs work much like traditional IRAs, with regard to the tax treatment of withdrawals. They do, however, allow you to contribute more money toward retirement each year above the standard traditional IRA contribution limit. That means you could enjoy a bigger tax break when it’s time to deduct contributions.

If you have employees, you can make retirement plan contributions to a SEP IRA on their behalf. SEP IRA contribution limits are, for the most part, the same for both employers and employees. If you’re interested in a SEP, you can set up an IRA for yourself or for yourself and your employees through an online brokerage.

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Diving Deeper: Pros and Cons of Each Plan

As you debate between a solo 401(k) vs. a SEP IRA as ways to build wealth for retirement, it’s helpful to learn more about how these plans work, including their benefits and drawbacks.

Advantages of Solo 401(k)s

In terms of differences, there are some things that set solo 401(k) plans apart from SEP IRAs.

With a solo 401(k), you can choose a traditional or Roth. You can deduct your contributions in the year you make them with a traditional solo 401(k), but you’ll pay taxes on your distributions in retirement. With a Roth solo 401(k) you pay taxes on your contributions in the year you make them, and in retirement, your distributions are tax free. You can choose the plan that gives you the best tax advantage.

Another benefit of a solo 401(k) is that those age 50 and older can make catch-up contributions to this plan. In addition, you may be able to take a loan from a solo 401(k) if the plan permits it.

Advantages of SEP IRAs

One of the benefits of a SEP IRA is that contributions are tax deductible and you can make them at any time until your taxes are due in mid-April of the following year.

The plan is also easy to set up and maintain.

If you have employees, you can establish a SEP IRA for yourself as well as your eligible employees. You can then make retirement plan contributions to a SEP IRA on your employees’ behalf. (All contributions to a SEP are made by the employer only, though employees own their accounts.)

SEP IRA contribution limits are, for the most part, the same for both employers and employees. This means that you need to make the same percentage of contribution for each employee that you make for yourself. That means if you contribute 15% of your compensation for yourself, you must contribute 15% of each employee’s compensation (subject to contribution limits).

A SEP IRA also offers flexibility. You don’t have to contribute to it every year.

However, under SEP IRA rules, no catch-up contributions are allowed. There’s no Roth option with a SEP IRA either.

Eligibility and Contribution Limits

Here’s what you need to know about who is eligible for a SEP IRA vs. a Solo 401(k), along with the contribution limits for both plans for 2023.

Who Qualifies for a Solo 401(k) or SEP IRA?

Self-employed individuals and business owners with no employees (aside from their spouse) can open and contribute to a solo 401(k). There are no income restrictions on these plans.

SEP IRAs are available to self-employed individuals or business owners with employees. A SEP IRA might be best for those with just a few employees because IRS rules dictate that if you have one of these plans, you must contribute to a SEP IRA on behalf of your eligible employees (to be eligible, the employees must be 21 or older, they must have worked for you for three of the past five years, and they must have earned at least $750 in the tax year).

Plus, the amount you contribute to your employees’ plan must be the same percentage that you contribute to your own plan.

Contribution Comparison

With a solo 401(k), there are rules regarding contributions, including contribution limits. For 2023, you can contribute up to $66,000, plus an additional catch-up contribution of $7,500 for those age 50 and older. In 2024, you can contribute up to $69,000, plus an extra catch-up contribution of $7,500 for those age 50 and older.

For the purposes of a solo 401(k) you play two roles — employer and employee. As an employee, you can contribute the lesser of 100% of your compensation or up to $22,500 in 2023 and up to $23,000 in 2024. If you’re 50 or older, you can contribute the $7,500 catch-up contribution in 2023 and 2024 as well. As an employer, you can make an additional contribution of 25% of your compensation (up to $330,000 of compensation in 2023 and $345,000 in 2024) or net self-employment income.

The contribution limits for a SEP IRA are the lesser of 25% of your compensation or $66,000 in 2023 and $69,000 in 2024. As mentioned earlier, there are no catch-up contributions with this plan.

And remember, per the IRS, if you have a SEP IRA, you must contribute to the plan on behalf of your eligible employees. The amount you contribute to your employees’ plan must be the same percentage that you contribute to your own plan.

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Key Differences That Could Influence Your Decision

When you’re deciding between a solo 401(k) vs. a SEP IRA, consider the differences between the two plans carefully. These differences include:

Roth Options and Tax Benefits

With a solo 401(k), you can choose between a traditional and Roth solo 401(k), depending on which option’s tax benefits make the most sense for you. If you expect to be in a higher tax bracket when you retire, a Roth may be more advantageous since you can pay taxes on your contributions upfront and get distributions tax-free in retirement.

On the other hand, if you anticipate being in a lower tax bracket at retirement, a traditional solo 401(k) that lets you take deductions on your contributions now and pay tax on distributions in retirement could be your best option.

Loan Options and Investment Flexibility

You may also be able to take a loan from a solo 401(k) if your plan permits it. Solo 401(k) loans follow the same rules as traditional 401(k) loans.

If you need to take money from a SEP IRA before age 59 ½, however, you may pay an early withdrawal penalty and owe income tax on the withdrawal.

Both solo 401(k)s and SEP IRA offer more investment options than workplace 401(k)s. So you can choose the investment options that best suit your needs.

The Impact of Having Employees

Whether you have employees or not will help determine which type of plan is best for you.

A solo 401(k) is designed for business owners with no employees except for a spouse.

A SEP IRA is for those who are self-employed or small business owners. A SEP IRA may be best for those who have just a few employees since, as discussed above, you must contribute to a SEP IRA on behalf of all eligible employees and you must contribute the same percentage of compensation as you contribute for yourself.

The Financial Implications for Your Business

The plan you choose, solo 401(k) vs. SEP IRA, does have financial and tax implications that you’ll want to consider carefully. Here’s a quick comparison of the two plans.

Solo 401(k) vs SEP IRA at a Glance

Both solo 401(k) plans and SEP IRAs make it possible to save for retirement as a self-employed person or business owner when you don’t have access to an employer’s 401(k). And both can potentially offer a tax break if you’re able to deduct contributions each year.

Here’s a rundown of the main differences between a 401(k) vs. SEP IRA.

	Solo 401(k)	SEP IRA
Tax-Deductible Contributions	Yes, for traditional solo 401(k) plans	Yes
Employer Contributions Allowed	Yes	Yes
Employee Contributions Allowed	Yes	No
Withdrawals Taxed in Retirement	Yes, for traditional solo 401(k) plans	Yes
Roth Contributions Allowed	Yes	No
Catch-Up Contributions Allowed	Yes	No
Loans Allowed	Yes	No

How These Plans Affect Your Bottom Line

Both solo 401(k)s and SEP IRAs are tax-advantaged accounts that can help you save for retirement. With a SEP IRA, contributions are tax deductible, including contributions made on employees’ behalf, which offers a tax advantage. Solo 401(k)s give you the option of choosing a traditional or Roth option so that you can pay tax on your contributions upfront and not in retirement (traditional), or defer them until you retire (Roth).

Making the Choice Between SEP IRA and Solo 401(k): Which Is Right for You?

An important part of planning for your retirement is understanding your long-term goals. Whether you choose to open a solo 401(k) or make SEP IRA contributions can depend on how your business is structured, how much you want to save for retirement, and what kind of tax advantages you hope to enjoy along the way.

When to Choose a Solo 401(k)

If you’re self-employed and have no employees (or if your only employee is your spouse), you may want to consider a solo 401(k). A solo 401(k) could allow you to save more for retirement on a tax-advantaged basis compared to a SEP IRA. A solo 401(k) allows catch-up contributions if you are 50 or older, and you can also take loans from a solo 401(k).

Just be aware that a solo 401(k) can be more work to set up and maintain than a SEP IRA.

When to Choose a SEP IRA

If you’re looking for a plan that’s easy to set up and maintain, a SEP IRA may be right for you. And if you have a few employees, a SEP IRA can be used to cover them as well as your spouse. However, you will need to cover the same percentage of contribution for your employees as you do for yourself.

Remember that a SEP IRA does not allow catch-up contributions, nor can you take loans from it.

Step-by-Step Guide to Opening Your Account

You can typically set up a SEP IRA with any financial institution that offers other retirement plans, including an online bank or brokerage. The institution you choose will guide you through the set-up process and it’s generally quick and easy.

Once you establish and fund your account, you can choose the investment options that best suit your needs and those of any eligible employees you may have. You will need to set up an account for each of these employees.

To open a Solo 401(k), you’ll need an Employee Identification Number (EIN). You can get an EIN through the IRS website. Once you have an EIN, you can choose the financial institution you want to work with, typically a brokerage or online brokerage. Next, you’ll fill out the necessary paperwork, and once the account is open you’ll fund it. You can do this through direct deposit or a check. Then you can set up your contributions.

Additional Considerations for Retirement Planning

Besides choosing a SEP IRA or a solo 401(k), there are a few other factors to consider when planning for retirement. They include:

Rollover Process

At some point, you may want to roll over whichever retirement plan you choose — or roll assets from another retirement plan into your current plan. A SEP IRA allows for either option. You can generally roll a SEP IRA into another IRA or other qualified plan, although there may be some restrictions depending on the type of plan it is. You can also roll assets from another retirement plan you have into your SEP.

A solo 401(k) can also be set up to allow rollovers. You can roll other retirement accounts, including a traditional 401(k) or a SEP IRA, into your solo 401(k). You can also roll a solo 401(k) into a traditional 401(k), as long as that plan allows rollovers.

Can You have Both a SEP IRA and a Solo 401(k)?

It is possible to have both a SEP IRA and a solo 401(k). However, how much you can contribute to them depends on certain factors, including how your SEP was set up. In general, when you contribute to both plans at the same time, there is a limit to how much you can contribute. Generally, your total contributions to both are aggregated and cannot exceed more than $66,000 in 2023 and $69,000 in 2024.

Preparing for Retirement Beyond Plans

Choosing retirement plans is just one important step in laying the groundwork for your future. You should also figure out at what age you can retire, how much money you’ll need for retirement, and the typical retirement expenses you should be ready for.

Working on building your retirement savings is an important goal. In addition to opening and contributing to retirement plans, other smart strategies include creating a budget and sticking to it, paying down any debt you have, and simplifying your lifestyle and cutting unnecessary spending. You may even want to consider getting a side hustle to bring in extra income.

The Takeaway

Saving for retirement is something that you can’t afford to put off. And the sooner you start, the better so that your money has time to grow. Whether you choose a solo 401(k), SEP IRA, or another savings plan, it’s important to take the first step toward building retirement wealth.

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Photo credit: iStock/1001Love

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May

2024

Mutual Funds vs Index Funds: Key Differences

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

Mutual funds and index funds are similar in many ways, but there are some key differences that investors need to understand to effectively implement them into an investment strategy. Those differences might include investing style, associated fees and taxes, and how they work.

The choice between an index fund and an actively managed mutual fund can be a hard one, especially for investors who are unsure of the distinction. The differences between index funds and other mutual funds are actually few — but may be important, depending on the investor.

Key Points

• Index funds aim to mirror the performance of a specific market index, using a passive investment strategy.

• Mutual funds are actively managed by fund managers who select securities to potentially outperform the market.

• The costs associated with mutual funds are generally higher due to active management fees.

• Index funds typically have lower expense ratios, making them a cost-effective option for investors.

• The choice between index and mutual funds depends on individual investment goals and preferences for active versus passive management.

What’s the Difference between Index Funds and Mutual Funds?

Index funds and mutual funds are similar in many ways, but they do differ in some others, such as how they work, associated costs, and investment style.

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How They Work

Index funds are a type of mutual fund, interestingly enough. Index funds are distinguished by their investing approach: Index funds invest in an index, and only change the securities they hold when the index changes, or to realign their holdings to better match the index they invest in.

Rather than rely on a portfolio manager’s instincts and experience, an index fund tracks a particular index. There are benchmark indexes across all of the different asset classes, including stocks, bonds, currencies, and commodities. As an example, the S&P 500® Index tracks the stocks of 500 of the leading companies in the United States.

An index fund aims to mirror the performance of a given benchmark index by investing in the same companies with similar weights. With these funds, it’s not about beating the market, it’s about tracking it, and as such, index funds typically follow a passive investment strategy, known as a buy-and-hold strategy.

A mutual fund is an investment that holds a collection — or portfolio — of securities, such as stocks and bonds. The “mutual” part of the name has to do with the structure of the fund, in that all of its investors mutually combine their funds in this one shared portfolio.

Mutual funds are also called ’40 Act funds, as they were created in 1940 by an act of Congress that was designed to correct some of the investment abuses that led to the Stock Market Crash of 1929. It created a regulatory framework for offering and maintaining mutual funds, including requirements for filings, service charges, financial disclosures, and the fiduciary duties of investment companies.

To get people to invest, the portfolio managers of a given mutual fund offer a unique investment perspective or strategy. That could mean investing in tech stocks, or only investing in the fund manager’s five best ideas, or investing in a few thousand stocks at once, or only in gold-mining stocks, and so on.

Fees and Taxes

There may be different associated costs with index funds and mutual funds as well.

Mutual-fund managers generally charge investors a management fee, which comes from the assets of the fund. Those fees vary widely, but an active manager will generally charge more, as they have to pay the salaries of analysts, researchers, and the stock pickers themselves. Passive managers of index funds, on the other hand, simply have to pay to license the use of an index.

An actively-managed mutual fund may charge an expense ratio (which includes the management fee) of 0.5% to 0.75%, and sometimes as high as 1.5%. But for index funds, that expense ratio is typically much lower — often around 0.2%, and as low as 0.02% for some funds.

Investing Style

The two also differ on a basic level in that index funds are a passive investing vehicle and mutual funds are typically actively managed. That means that investors who want to take a hands-off approach may find index funds a more suitable choice, whereas investors who want a guiding hand in their portfolio may be more attracted to mutual funds.

Mutual Funds vs. Index Funds: Key Differences
Mutual Funds	Index Funds
Overseen by a fund manager	Track a market index
May have higher associated costs	Typically has lower associated costs
Active investing	Passive investing

Index vs Mutual Fund: Which is Best for You?

There’s no telling whether an index or mutual fund is better for you — it’ll depend on specific factors relevant to your specific situation and goals.

When deciding how to invest, everyone has their own unique approach. If an investor believes in the expertise and human touch of a fund manager or team of professionals, then an actively managed fund like a mutual fund may be the right fit. While no one beats the market every year, some funds can potentially outperform the broader market for long stretches.

But for those individuals who want to invest in the markets and not think about it, then the broad exposure — and lower fees — offered by index funds may make more sense. Investing in index funds tends to work best when you hold your money in the funds for a longer period of time, or use a dollar-cost-average strategy, where you invest consistently over time to take advantage of both high and low points.

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The Takeaway

Index funds and mutual funds are similar investment vehicles, but there are some key differences which include how they’re managed, costs associated with them, and how they function at a granular level.

The choice between index funds and other mutual funds is one with decades of debate behind it. For individuals who prefer the expertise of a hands-on professional or team buying and selling assets within the fund, a mutual fund may be preferred. For investors who’d rather their fund passively track an index — without worrying about “beating the market” — an index fund might be the way to go.

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FAQ

Do index funds outperform mutual funds?

Actively-managed funds, such as mutual funds, tend to underperform the market as a whole over time. That’s to say that most of the time, a broad index fund may be more likely to outperform a mutual fund.

Do people prefer index funds over mutual funds, or mutual funds over index funds?

The types of funds that investors prefer to invest in depends completely on their own financial situation and investment goals. But some investors may prefer index funds over mutual funds due to their hands-off, passive approach and lower associated costs.

Are mutual funds riskier than index funds?

Mutual funds may be riskier than index funds, but it depends on the specific funds being compared — mutual funds do tend to be more expensive than index funds, and tend to underperform the market at large, too.

An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0224025

Apr

2024

Student Loan Refinancing: What Happens If There’s Overpayment?

By Rebecca Safier | Fresh Out of School, Going to College, Student Loans, student_loan | Comments Off

If there’s an overpayment on your student loan refinance, the money might be returned to you or go towards your next payment on your new loan. Another possibility is that you may have to request a student loan overpayment refund.

These kinds of situations do occur, and they are typically resolved without too much effort. Here’s a closer look at student loan overpayment when you are refinancing your debt and what you can do to get your money back.

Student Loan Overpayment Explained

Student loan overpayment occurs when you pay off more than the amount you owe to your loan servicer. If you owe $1,000 on your loan and make a $1,500 payment, you’ve overpaid by $500.

This might happen for a couple of reasons.

• For one, you might send an extra payment before your loan servicer has processed your previous one. It might take some time for your payments to reflect in your account. If you send an extra payment before the servicer has applied your last one, you could end up overpaying your balance.

• Overpaying loans can also happen when you refinance student loans. When you refinance, your new loan provider will pay back your old balances. Specifically, it will send the amount that’s agreed upon when you sign the Truth in Lending (TIL) Disclosure, which is one of the documents you must sign to finalize your loan refinance.

If you make a payment on your old loans after you’ve signed the TIL Disclosure but before your new refinancing provider has disbursed the payment, the amount sent to your old servicer will exceed your balance. Your new lender will have paid off your old loan and then some, resulting in a student loan overpayment.

That’s not to say that you shouldn’t keep paying back your student loans while you’re waiting for refinancing to go through. In fact, it’s important to keep up with repayment so you don’t miss any due dates and end up with a negative mark on your credit report. Wait until your new refinanced student loan is up and running before you stop paying your old student loans.

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What Happens When a Student Loan Is Overpaid?

There are a few things that can happen when there’s an overpaid student loan. For one, a loan servicer might send the extra payment back to you via check or direct deposit.

If a refinancing provider overpaid your account, your old servicer might send the payment back to them. Then, that refinancing lender could send you back the payment or apply it toward your new, refinanced student loan.

Let’s say, for instance, that you decide to refinance your federal student loans with Alpha (a made-up company for the sake of this example). You understand that refinancing with a private student loan means you forfeit federal benefits and protections, and you know that if you refinance for an extended term, you may pay more interest over the life of the loan. If Alpha sends an overpayment to your existing loan servicers, those servicers will generally return the extra amount to Alpha. Then, Alpha will apply that overpayment retroactively to the principal balance on your new Alpha loan, a process that may take about six to eight weeks.

In some cases, your old servicer will send the payment back to you. For example, a lender might send a refund to the borrower directly if the overpaid amount is less than $500. In this case, the amount might be sent back to you via check using the address it has on file.

You can also receive a direct deposit, but you may need to request it specifically. Reach out to your loan servicer to find out how it deals with excess payments and any steps you need to take to receive your student loan refund.

💡 Quick Tip: If you have student loans with variable rates, you may want to consider refinancing to lock in a fixed rate before rates rise. But if you’re willing to take a risk to potentially save on interest — and will be able to pay off your student loans quickly — you might consider a variable rate.

What Should I Do With My Refund?

Finding out you overpaid your student loans can result in a windfall of cash. You may be wondering what to do with your student loan refund. Here are a few options worth considering.

Put Towards Next Payment

If you already used that payment toward your old loans, you might put it toward your new refinanced loan to pay down your balance faster (if your new servicer hasn’t already sent it there). After all, you’d already designated that cash for a student loan payment, so you may not miss having it in your bank account.

Making extra payments on your student loans can help you pay your student loan off early and save on interest charges. Let’s say, for example, that you owe $5,000 at a 7% interest rate with a five-year repayment term. If you make an extra payment of $500, you’ll get out of debt eight months sooner and save $292 in interest.

Use this tool for calculating student loan payments and finding out how much you can save by making extra payments. If you choose this route, instruct your loan servicer to apply the extra payment to your principal balance, rather than saving it for a future payment.

Use For Personal Expenses

Another option is putting that student loan refund toward personal expenses or your own savings. If you’re struggling to pay your rent or have other high-interest debt, for instance, covering those costs might be a priority over prepaying your student loans.

It’s also useful to have an emergency fund on hand that you can draw on if you lose your job or encounter unexpected expenses. Funneling that student loan refund into an emergency fund could save the day if you run into financial hardship.

However, using that refund on vacation or non-essential expenses might not be the best idea if you’re dealing with debt or don’t have an emergency fund in place. Consider your financial goals and priorities to determine the best use for that student loan refund.

The Takeaway

Overpaying student loans may be an inconvenience, but don’t worry about losing that money forever — you’ll get it back in the form of a refund or a payment toward your new, refinanced student loan. The exact process may vary by lender, so reach out to yours to find out what will happen next and whether there are any steps you must take to get your refund. Ensure that your loan servicers have your current address on hand, too, in case they need to mail you a check.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

What happens if you overpay a student loan?

If you overpay a student loan, your servicer will issue a refund. That refund may go to you or, in the case of refinancing, to the third-party servicer that issued the payment. The exact process may vary by lender, so get in touch with yours to find out where it will send your refund.

What happens to excess student loan money?

When you borrow a student loan, the lender usually sends the amount directly to your financial aid office, which applies it to required expenses like tuition and fees. It then sends any excess funds to you so you can use the money on books, supplies, living expenses, and other education-related costs. If you find you borrowed more than you need, you could consider returning the amount to your lender. If you return part of a federal student loan within 120 days of disbursement, you won’t have to pay any fees or interest on the amount.

Does refinancing affect student loan forgiveness?

Refinancing student loans can affect your eligibility for loan forgiveness. Most loan forgiveness programs are federal, and when you refinance federal loans with a private lender, you lose access to federal programs, such as Public Service Loan Forgiveness and Teacher Loan Forgiveness.

Photo credit: iStock/stefanamer

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

SOSL0322009

Apr

2024

Family Loans: A Complete Guide to Borrowing and Lending Money to Family

By Jamie Cattanach | Budgeting & Goals, personal_loan | Comments Off

Borrowing money from family members — or lending it to them — can be a risky business. And although all debt is risky, family loans carry different kinds of dangers.

Although family lenders don’t have to worry about pulling (or affecting) anyone’s credit score, private loans may put a strain on otherwise strong relationships. Depending on the size of the loan, there may also be tax implications to consider.

That said, there are ways to thoughtfully issue and receive family loans. Here are our best tips for stacking the odds in your favor.

What Are Family Loans?

Family loans are those that are given and received within a family group, instead of a typical lending situation like a bank or credit union, or even a payday lender.

Someone who may not be able to qualify for a traditional loan might be inclined to ask a family member for a loan.
Sometimes a family loan might work in the interest of both parties. For instance, the borrower might receive a more favorable interest rate than they might have from a bank, and the lender might receive a higher interest rate than they would find in a savings account.

Reasons someone might ask a family member for a loan are similar to reasons they might consider a personal loan: They might need cash for emergency medical expenses, unexpected home repairs, or expenses for adoption or fertility treatments.

💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.

How Do Family Loans Work?

At their most basic, family loans work similarly to traditional loans: One person asks for a loan, and another person approves the request. While that is an oversimplification, the concept is the same. There is generally less paperwork involved in a family loan, with no application or credit check necessary, although a formal contract detailing each party’s rights and responsibilities is recommended.

Terms for the Lender to Include in a Family Loan

• Amount loaned

• Interest rate, if interest is charged

• Payment amount (often, monthly)

• Penalties for non-payment

Terms for the Borrower to Include in a Family Loan

• Amortization schedule, with principal and interest amounts clearly stated

• Ability to pay the loan off early without penalty

• Periods of payment suspension in cases of hardship

Risks and Benefits of Family Loans

No matter which end of the dynamic you might find yourself on, there are both risks and benefits to family loans. But while both the borrower and lender risk putting a strain on the family relationship involved, the lender is likely to carry the greater financial risk — after all, it can be pretty hard to recoup your losses when you have no official financial authority.

Risks of Family Loans

One of the biggest risks of loans between family members is the potential for conflict within the relationship. People tend to have strong emotions tied to money. Some risks lie with the borrower or lender alone, though.

Risks for the Borrower:

• There is risk to the relationship if the loan repayment plan falls through.

• Although avoiding a credit check — and possible negative credit consequences — is a plus, family loans also fail to help borrowers build their credit history since they’re not reported to credit bureaus.

Risks for the Lender:

• There is risk to the relationship if the loan repayment plan falls through — which puts the lender into a particularly tricky situation if they really need the cash back for their own financial situation.

• It’s easy for family lenders to lose their money outright if the borrower constantly defers to an IOU.

• Since family lenders don’t have any financial authority or backing, it can be difficult to recoup losses or enforce any substantial consequences for borrowers who go into default.

• If the loan is interest-free and for an amount in excess of the IRS gift tax exclusion , it may trigger the need to file a gift tax return (and potentially pay taxes on the gift).

Benefits of Family Loans

Despite their risks, family loans do have some attractive qualities.

Benefits for the Borrower:

• Family loans present a potentially low-cost alternative to traditional credit options. Family lenders usually don’t assess fees and may not charge interest.

• Family loans can carry much easier approval standards than their official counterparts. At a financial institution, borrowers are subject to a credit check, employment history, income verification, and more. A family member is not likely to run those checks.

• Family loans often carry more flexible repayment standards than traditional loans do, and family lenders may be more lenient if the borrower faces extenuating circumstances that make it difficult to make payments.

• Failure to pay private family loans in a timely manner — or at all — won’t impact the borrower’s credit score the way such behavior would with a traditional loan.

Benefits for the Lender:

• It can feel rewarding to help out a family member in need, particularly if they’re putting the money toward a major life goal like homeownership.

• If the lender chooses to charge interest on the loan, they can earn interest as the loan is repaid.

Tax Implications of Family Loans

It can be surprising to learn that loaning money to a family member could be a big enough deal to land on the IRS’s radar.

Fortunately, most family loans fall outside of the purview of the IRS. It’s only when they’re above IRS-defined amounts and interest-free that lenders have to report them on their tax return.

If a family lender offers an interest-free loan to a family borrower, the IRS still sees the transaction as a loan — and assumes that the interest that should have been charged counts as a gift to the recipient. (The government publishes minimum interest rates on a monthly basis.)

That’s no big deal if the loan is for, say, $300. But if the unpaid interest — or unpaid loan balance — tops the annual gift-giving exclusion, which is $17,000 ($34,000 for married couples) for 2023 and $18,000 ($36,000 for married couples) for 2024, the lender might be responsible for filing a gift tax return and potentially paying taxes on the gift.

The IRS might also count the should-be interest toward the lender’s gross income, even if no interest is charged or received. Again, this isn’t a big deal on loans of just a few hundred dollars, but with a large enough loan, it could impact the lender’s finances.

Making a Family Loan Legitimate for Tax Purposes

The main thing that makes a family loan legitimate to the IRS is a family loan agreement that specifies repayment terms. If an agreement is not in place, the agency may consider it a gift instead of a loan.

The federal government sets minimum interest rates (as noted above) that lenders can charge on a private loan, which a family loan is. If less than the minimum interest rate is charged, the IRS may assess taxes on any unpaid interest that is deemed payable.

Keeping records of payments made will also show the IRS that the lender was keeping track of the debt and that there is an expectation of repayment.

Recommended: How to Gift a Stock

Tips to Successfully Borrow From or Lend Money to Family

If you’re considering lending money to, or borrowing money from, a family member, adding some structure to your loan can help minimize the risks while still allowing everyone involved to reap the benefits.

Planning Your Family Loan Out

All too often, a family loan takes place in a single, impromptu transaction: The borrower asks for some money, and the lender gives it.

A better bet is to make a concrete plan together that specifies all the loan’s terms, such as repayment installments and timing. Lenders might want to consider charging interest, especially on large loans, due to the tax implications outlined above. Even a low family loan interest rate can motivate a borrower to get serious about repayment.

Making a Family Loan Official

Clear communication and boundary-setting skills make pulling off a family loan a positive experience for all involved — and oftentimes, the best way to achieve those goals is to write things down.

Plus, drafting a formal money-lending contract makes your loan official in the eyes of the IRS, which can help keep loans from being classified as gifts for tax purposes.

Terms to include in your family loan agreement include:

• The amount loaned.

• The loan’s repayment terms, such as frequency and amount, as well as a due date for when the loan must be repaid in full.

• The loan’s interest rate and fees, if any (for instance, the lender may decide to charge late fees if the loan repayment terms are not honored).

• Clauses concerning what happens if the loan is repaid early (is there a prepayment penalty?) and what happens if the borrower goes into default for any reason.

Family Loans vs Gifts

If a family lender has the financial ability and willingness to make a monetary gift instead of a loan, they can do so without tax implications for amounts up to $17,000 for 2023 and $18,000 for 2024.

There are various reasons why someone might choose to give a gift instead of making a loan, or vice versa.

Family Loan	Gift
Interest rates can be advantageous to both parties.	There is no expectation of repayment for a gift.
Written agreement legitimizes the loan for tax purposes.	No paperwork necessary.
Family loans have potential to cause conflict.	Giving a gift is generally construed as a positive thing.
The IRS determines minimum acceptable interest rates and loan amounts subject to those rates.	Gifts under a certain value are excluded from the IRS gift tax in most cases.

Alternatives to Family Loans

If all of these caveats and warnings are making family loans sound like a less-than prudent idea, there are alternatives to consider before asking family members for a loan. (And yes, if a family member asks you to borrow money, you’re allowed to say no and steer them in a different direction.)

Obviously, the most ideal financial strategy for making a big purchase is to save your money so you don’t have to go into debt at all. Although this isn’t always possible or realistic, it might be worth taking a second look at your budget, working on a promotion, or starting up a side hustle to generate cash.

Unsecured personal loans are available from certain banks and financial institutions and make it possible to fund a wide variety of expenses upfront. Of course, these may come with higher interest rates and more stringent qualification requirements than family loans do.

You might also consider asking a family member to cosign on a loan with you instead of loaning you the money. They would be responsible for making the loan payments if you, the primary borrower, don’t, but they wouldn’t be immediately taking money out of their own bank account to help you.

If you need to borrow money for business purposes, a small business loan may be an option to think about. The Small Business Administration is an excellent resource for business loans. The agency works with lenders to help small business owners find funding for a wide range of amounts and terms, with competitive interest rates.

💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.

The Takeaway

While borrowing money from, or lending money to, a family member can be tempting, it can have long-lasting impacts on interpersonal relationships as well as the lender’s finances. Drafting a structured family loan agreement can help, but you may also want to explore a traditional personal loan from a bank, credit union, or online lender.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

What is a loan from a family member called?

A loan from a family member is often referred to as a family loan, an intra-family loan, or a friends and family loan.

Can family loans help your credit?

Since a family member is not likely to formally check your credit report or provide payment information to the credit bureaus, a family loan probably won’t help (or hurt) your credit.

Are family loans considered debt?

Yes, a loan from a family member is considered debt, but will likely not be reflected on your credit report. For tax purposes, a family loan is considered debt if it meets certain guidelines.

Photo credit: iStock/Ridofranz

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOPL0124018

Mar

2024

Are There Loans for 18-Year-Olds With No Credit History?

By Melissa Brock | Budgeting & Goals, Growing Wealth, Money & Life, personal_loan | Comments Off

If you’re an 18-year-old with no credit history, you can get a loan, but your choices may be more limited. You may have to tap into alternative options and sources, such as loans with a cosigner.

That’s because lenders like to lend to people with a history of borrowing and on-time payments. Oftentimes, young people just starting out have no credit history. This means they have no credit accounts in their name or haven’t used credit for a long period of time and the information has been removed from their credit history. Without credit, it can be difficult to access loans or credit cards, rent an apartment or buy a house, and obtain certain subscriptions.

Let’s take a closer look at loans for 18-year-olds.

Benefits of Loans for 18-Year-Olds

Two important benefits of getting a loan as an 18-year-old include gaining access to funds and building up credit history.

Access to Funds

The obvious benefit of getting loans as a young person is that you will have access to the money you need. Depending on the type of loan you get, you may be able to use the funds for a variety of purposes, including:

• Education

• Purchasing big-ticket items, such as a car

• Personal expenses, such as medical or wedding expenses

Build Up Your Credit History

Loans allow you to start building up your credit history, which can help you meet goals such as:

• Getting a cellphone

• Accessing utilities in your name

• Qualifying for a credit card

• Getting good rates on insurance, a mortgage, or auto loan

Plus, establishing a strong record of borrowing and repayment can position you well for future borrowing.

💡 Quick Tip: Need help covering the cost of a wedding, honeymoon, or new baby? A SoFi personal loan can help you fund major life events — without the high interest rates of credit cards.

Cons of Loans for 18-Year-Olds

While there are benefits to getting a loan when you’re 18, there are downsides to consider as well. Let’s take a closer look at a few.

Limited Loan Amounts

You may not be able to borrow a large loan amount when you’re young and just starting out. For example, if you want to purchase a $500,000 home as an 18-year-old and have no credit history, you’ll likely have difficulty qualifying for this type of loan.

Potentially High Rates

It’s possible to get a loan with no credit as a young person, but lenders may charge a higher interest rate than if you had an established credit history.

Why is that the case? Lenders try to assess your risk level when you apply for anything from a personal loan to a credit card. If they can’t see evidence that you have successfully made loan payments, they may not grant you a loan or they may compensate for that risk by charging you a higher interest rate.

Some lenders consider other aspects of your profile beyond credit history, including whether you can comfortably afford your payments.

Risk of Getting Into Debt

According to a consumer debt study conducted by Experian, Generation Z (those aged 18-26) had a non-mortgage debt average of $15,105 in 2023. This includes credit cards, auto debt, personal loans, or student loans.

While carrying any level of debt can be stressful, there are also financial implications to consider. For starters, if you don’t pay off your balance in a timely way, interest can start to build. Credit cards tend to carry higher interest rates than home or auto loans. This means wiping out credit card debt could take a long time if you only pay the minimum amount.

Then there are potential penalties to be mindful of, such as late fees. You may also face collection costs if you don’t pay your bills, which will remain on your credit report and potentially impact your credit score for years.

Is a Co-Signer Required When Applying for Loans as an 18-Year-Old?

Not all lenders require a cosigner, so be sure to ask if you’ll need one. In most cases, a loan without a cosigner will likely have a lower loan amount and a higher interest rate.

What exactly is a cosigner? Simply put, it’s a person who agrees to take responsibility for a loan alongside the primary borrower. If one person fails to make payments, it will affect the other person’s credit score.

Applying for a loan with a co-borrower or cosigner can be a quick way to get accepted for a loan.

Understanding Your Loan Status

Like many financial processes, applying for a loan involves multiple steps. Here’s a general idea of what’s involved:

• Pre-approval: Pre-approval means that your lender takes a look at your qualifications (including a soft credit check). A soft credit check is an inquiry of your credit report.

• Application: In this part of the process, you submit a formal application, and your lender will verify your information.

• Conditional approval: You may also get conditional approval for your loan, which means the lender may likely approve you to get a loan as long as you meet all the requirements.

• Approval or denial: Finally, you’ll either get approved or denied for the loan.

Your lender should be clear with you at every step of the application process.

Recommended: How to Get Approved for a Personal Loan

Private Lender Loan Requirements for 18-Year-Olds

There are no hard-and-fast requirements that encompass private lender requirements. However, lenders generally look at an applicant’s credit score, debt, and income.

Credit Score

There’s no universally set minimum credit score requirement for a loan because rules can vary by lender. It’s worth noting that low-to-no-credit borrowers may be able to access a loan.

Debt and Income

Lenders will check to see how much debt you have and calculate your debt-to-income (DTI) ratio, which ideally should be less than 36%. To figure out your DTI, lenders add up your debts and divide that amount by your gross income.

Lenders will also look at your income to ensure you can make monthly payments on your loan. This can include income from your job, a spouse’s income, self-employment, public assistance, investments, alimony, financial aid for school, insurance payments, and an allowance from family members.

Tips for Getting Loans as an 18-Year-Old

If you’re ready to get a loan as a young person, you can take steps to help boost your odds of getting approved.

Show Your Savings

Show the lender what you’ve saved in your accounts, which may include:

• High-yield savings accounts

• Certificates of deposit (CDs)

• Money market account

• Checking or savings accounts

• Treasuries

• Bonds, stocks, real estate, and other investments

Demonstrating savings can help you show that you can repay your loan.

Show Proof of Income

Lenders will likely require you to provide proof of income so they can see how you’ll pay for your loan. But remember, this doesn’t mean just the money you earn from a job. Consider other types of income you receive. For instance, you may not initially think of alimony as a source of income, but a lender might.

Apply for a Lower Amount

Lenders may deny your loan if you choose to borrow more money than you can realistically repay. So if you’re young and have no credit history, you may be able to increase your chances of getting a loan if you apply for a lower amount. You may also want to consider this strategy if you’re denied for a loan and want to reapply.

💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

The Takeaway

While most 18-year-olds don’t have a large income or lengthy credit history, that doesn’t mean you can’t qualify for a personal loan. Just remember that funding choices may be more restricted, and you might not qualify for a large amount. If you’re having trouble getting approved, you may want to consider asking someone to cosign the loan, showing proof of income and savings, or applying for less money.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

Are there loans for 18-year-olds without a job?

You can get a loan without a job. However, you’ll need to show a lender that you have some form of consistent income, such as through investments, alimony, financial aid, or another source of cash flow.

Are there loans for 18-year-olds without credit?

Yes, loans do exist for 18-year-olds with no credit history. But note that even if you qualify for a loan without credit, it may be a lower amount than you could qualify for if you had a lengthy credit history. You may also not be able to get a low interest rate.

Can I get a loan as an 18-year-old?

Yes, 18-year-olds can get a loan. Your age matters less than your credit history and credit score — or the availability of a cosigner. Keep in mind that you may have trouble getting a loan if you don’t meet a lender’s qualifications. Contact a lender to learn more about your options.

How can I build credit as an 18-year-old?

If you want to start building credit, it may be worth exploring a secured credit card. Similar to a debit card, this type of credit card requires you to put down a cash deposit to insure any purchases you make. For example, putting down a $1,000 deposit, and that becomes your starting credit line on your card.

Photo credit: iStock/SeventyFour

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPL1023021

Solo 401(k) vs SEP IRA: An In-Depth Comparison for Self-Employed Retirement Planning

Understanding the Basics

What Is a Solo 401(k)?

What Is a SEP IRA?

Boost your retirement contributions with a 1% match.

SoFi IRAs now get a 1% match on every dollar you deposit, up to the annual contribution limits. Open an account today and get started.

Diving Deeper: Pros and Cons of Each Plan

Advantages of Solo 401(k)s

Advantages of SEP IRAs

Eligibility and Contribution Limits

Who Qualifies for a Solo 401(k) or SEP IRA?

Contribution Comparison

Key Differences That Could Influence Your Decision

Roth Options and Tax Benefits

Loan Options and Investment Flexibility

The Impact of Having Employees

The Financial Implications for Your Business

Solo 401(k) vs SEP IRA at a Glance

How These Plans Affect Your Bottom Line

Making the Choice Between SEP IRA and Solo 401(k): Which Is Right for You?

When to Choose a Solo 401(k)

When to Choose a SEP IRA

Step-by-Step Guide to Opening Your Account

Additional Considerations for Retirement Planning

Rollover Process

Can You have Both a SEP IRA and a Solo 401(k)?

Preparing for Retirement Beyond Plans

The Takeaway

Mutual Funds vs Index Funds: Key Differences

What’s the Difference between Index Funds and Mutual Funds?

How They Work

Fees and Taxes

Investing Style

Index vs Mutual Fund: Which is Best for You?

The Takeaway

FAQ

Do index funds outperform mutual funds?

Do people prefer index funds over mutual funds, or mutual funds over index funds?

Are mutual funds riskier than index funds?

Student Loan Refinancing: What Happens If There’s Overpayment?

Student Loan Overpayment Explained

Take control of your student loans. Ditch student loan debt for good.

What Happens When a Student Loan Is Overpaid?

What Should I Do With My Refund?

Put Towards Next Payment

Use For Personal Expenses

The Takeaway

FAQ

What happens if you overpay a student loan?

What happens to excess student loan money?

Does refinancing affect student loan forgiveness?

Family Loans: A Complete Guide to Borrowing and Lending Money to Family

What Are Family Loans?

How Do Family Loans Work?

Terms for the Lender to Include in a Family Loan

Terms for the Borrower to Include in a Family Loan

Risks and Benefits of Family Loans

Risks of Family Loans

Risks for the Borrower:

Risks for the Lender:

Benefits of Family Loans

Benefits for the Borrower:

Benefits for the Lender:

Tax Implications of Family Loans

Making a Family Loan Legitimate for Tax Purposes

Tips to Successfully Borrow From or Lend Money to Family

Planning Your Family Loan Out

Making a Family Loan Official

Family Loans vs Gifts

Alternatives to Family Loans

The Takeaway

FAQ

What is a loan from a family member called?

Can family loans help your credit?

Are family loans considered debt?

Are There Loans for 18-Year-Olds With No Credit History?

Benefits of Loans for 18-Year-Olds

Access to Funds

Build Up Your Credit History

Cons of Loans for 18-Year-Olds

Take control of your student loans.
Ditch student loan debt for good.

Student Loan
Refinancing

Personal
Loans

Online
Investments