8 Challenges of Sending Large Sums of Money
There are plenty of reasons why a person may need to give someone a sizeable amount of cash. Maybe they’re supporting a family member that lives abroad. Perhaps they want to help someone during an emergency. However, regardless of the reason, moving significant amounts of cash can be tricky or may come with costs or hurdles you didn’t expect. Here’s a look at eight challenges of sending large sums of money.
1. Transfer Flags
Financial institutions have to follow laws regarding the movement of large sums of money. For instance, if any cash transaction involves more than $10,000, they have to report it to the IRS or other government institutions. That process is known as flagging.
The reason for flagging is so that government agencies can spot suspicious activity that may indicate a crime is occurring. For example, the reporting process can help spot potential instances of money laundering.
Typically, the reporting requirements won’t negatively impact the money transfer. However, that doesn’t mean it can’t. Additionally, it may alter the IRS to potential taxable income or gifts. While this isn’t inherently an issue if all parties intended to pay their taxes, it could lead to headaches later for anyone who wasn’t aware that the large sum of money would lead to additional taxes.
It’s important to note that dividing a large sum of money into several smaller transactions isn’t a solution. Instead, that may make it appear that the sender is trying to avoid detection, causing financial institutions to view the activity as suspicious. In turn, that could make a simple situation far worse, regardless of whether the sender or recipient was engaged in illegal activity.
As mentioned above, there are situations where sending large sums of money can alter someone’s tax situation. One of the clearest examples is gift taxes.
In 2022, the annual exclusion for gifts is $16,000, allowing you to send up to that amount without triggering any taxes. However, if you go above that, you may owe taxes on that money. You’ll have to file information with the IRS regarding the gift, and that could trigger taxes.
It’s important to note that there are some exceptions beyond the annual exclusion. For instance, gifts used to pay qualifying medical expenses or tuition aren’t taxable regardless of the size of the gift. Gifts to spouses are also exempt.
3. Transaction-Related Fees
Many financial institutions charge fees for handling certain transactions. In the same of sending large sums of money, there could be a sending fee and receiving fee. If the cash crosses through another financial institution along the way, you may see intermediary fees. There can also be correspondent bank fees, as well as cancellation fees if you decide to stop a transfer.
In most cases, these fees are removed from the cash you’re sending, which means the recipient gets less than what you originally sent. However, some may have to be paid separately, so keep that in mind.
4. Exchange Rates and Exchange Fees
If you’re sending large sums of money overseas, then exchange rates and related fees can be costly. Most financial institutions charge a fee for any currency exchanges they manage. Those fees can vary dramatically in amount. Plus, how the cost is calculated may be different depending on the institution you use.
Some financial institutions may have a flat fee, while others may charge a percentage of the total amount of money exchanged or do it on a per-unit basis. With the latter, that could involve a small markup for every whole unit of the currency you’re purchasing.
For instance, let’s say you were sending dollars, but the recipient was receiving euros. As of mid-August, the dollar to euro ratio was $1 to €0.97. However, the bank may functionally use an exchange rate of $1 to €1.02 instead, claiming the extra as a fee.
Technically, this leads to additional financial costs regardless of the amount of money you send. However, with larger sums, the total amount can be startling.
5. Timing-Related Delays
Today, it’s possible to send large sums of money to nearly anywhere in the world with surprising speed. But there are situations that can cause delays. For instance, some financial institutions may not handle transfer-related activities on weekends or holidays. In some cases, that can cause delays of up to three days.
For example, let’s say a financial institution usually offers next-day transfers. However, you don’t send the money until Friday. If the financial institution doesn’t operate on weekends and the following Monday is a holiday that triggers the financial institution to close, the money wouldn’t be available to the recipient until Tuesday.
The same sort of situation can occur with cutoff times. If a financial institution needs the sender to provide the money by 3:00 pm on a business day to provide next-day service, handling the transaction at 3:01 pm means you’re past the cutoff. As a result, you may not qualify for next-day service. Instead, the cash would become accessible to the recipient the day after next.
Whether timing-related delays are a problem largely depends on the urgency of the situation. However, it’s important to note that these issues can occur.
6. Mailing Risks
With large sums of money, most people turn to transfer services to handle the transaction. However, some people may think that mailing the cash is a better choice, as it may be less expensive overall.
Generally speaking, mailing money isn’t illegal unless the approach is used to support other criminal activity, such as money laundering or avoiding taxes. In those cases, you could face mail fraud charges, which can come with stiff penalties, including fines and jail time.
If you aren’t engaging in criminal activity, the issue is that mailing money – regardless of the amount – is risky. There are limits to how much you can insure the package for, so there may not be enough coverage to handle the full value of the currency. Otherwise, if the money is lost in transit, you won’t get reimbursed.
7. Daily, Weekly, or Monthly Limits
Another popular option for people who want to send money to family members and friends is services like PayPal, Zelle, Venmo, or Cash App. However, those services may not be the best choice if you need to send large sums of money to someone, particularly if you send to deliver it all at once.
Most of those services have daily, weekly, or monthly setting limits (or a combination of limits). For instance, Cash App restricts unverified users to just $250 per seven-day period and $1,000 per 30-day period. If you verify, the amounts go up significantly, reaching as high as $7,500 per seven-day period and $17,500 per month.
With PayPal, there are also limits, particularly for unverified accounts. Unverified accounts are restricted to monthly withdrawal limits of $500. Additionally, the largest amount of money they can send is potentially limited to $4,000, depending on a few account-related factors. If you verify, the situation changes, allowing you to send an unlimited amount, though you may only be able to send $10,000 at a time.
Venmo has a weekly sending limit of either $299.99 or $6,999.99, depending on whether your account is verified. The weekly limit for Zelle varies depending on your connected financial institution, or if your bank or credit union doesn’t offer Zelle directly, it is set at $500.
Those limits can make sending large sums of money cumbersome, particularly if you need to send it all at once. However, if you go through verification, you may be able to get a high enough limit to avoid any issues.
8. Destination Restrictions
Another issue for anyone sending money internationally is that not all services are viable for every country. There can be restrictions based on the destination nation that don’t exist for transactions involving US recipients.
Not all service providers support operations in every country. In some cases, that’s simply because they haven’t established a presence in the area. However, some of the lack of service is related to other matters.
For example, near the start of the Russian invasion of Ukraine, many payment processors ceased all Russian operations. As a result, many services won’t allow you to send money to Russia currently.
If you need to send money internationally, you need to research available services based on what’s available to you and the recipient. Depending on the destination country, that may be simple. However, for some nations, you may find that your options are limited or nonexistent.
Can you think of any other challenges of sending large sums of money? Have you found ways to navigate the difficulties above? Share your thoughts in the comments below.
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