- Can IRA Withdrawal Be Considered a Gift to a Family Member?
- Do I Automatically Have to Pay the IRS if I Borrow From My IRA?
- Can I Borrow From My 401(k) If I Am Already Retired?
- Can I Gift Monies From an IRA?
- When Is a Gift Tax Return Required?
- Do You Pay Tax on the Full Amount or Post-Penalty Amount on an Early Withdrawal From an IRA Tax?
While an individual retirement arrangement account is intended for your own tax-advantaged retirement savings over the long term, you may be able to give a gift from your account without facing a tax penalty for early withdrawal, or having to pay gift taxes on the amount you give. In most cases, even if you avoid penalties, you'll still be responsible for any applicable taxes on your withdrawal. The unified tax credit may also help save you from the gift tax if your gift exceeds the yearly amount exempt from gift taxes.
Allowable gift amounts are limited. As of 2013, you can give a gift to any individual of up to $14,000 per year without paying gift taxes. Your spouse may make a gift up to that limit to the same individual, as well. If you give more than this to any one person, you can use the unified credit to apply the gift toward your lifetime estate tax exemption of $5 million. If you give $1 million in cash to your son, claiming the unified tax credit for this gift, you only have only a $4 million exemption remaining on estate taxes.
You can withdraw Roth IRA contributions at any time without incurring any taxes or penalties because the contributions to your Roth IRA are made before taxes. The first withdrawals you make from your Roth account are considered to be contributions. If your account has a balance of $30,000 and you contributed $20,000 with gains of $10,000, the first $20,000 you withdraw is your contribution. If you gift your Roth contributions, this money is subject to any applicable gift taxes.
Higher Education Expenses
You can take money from your IRA account to give to your spouse, children or grandchildren to pay for approved higher education expenses without paying a penalty for the early withdrawal from your IRA. You will owe any applicable taxes on the withdrawal, but tuition expenses are exempt from gift taxes. The school must be an accredited school, and if you're paying for room and board, the student must be enrolled over half time for the penalty-free withdrawal to apply.
First-Time Home Purchase
You're allowed to take a penalty-free withdrawal from an IRA account to fund a first-time home purchase for yourself, but can also do so for your children, grandchildren or parents. A withdrawal for this amount is limited to $10,000 once in a lifetime, but your spouse can make the same withdrawal. The $10,000 amount is less than the maximum allowable $14,000 for gifts, so no gift taxes would apply to IRA funds used for home purchase, unless other gifts that you made caused the total to that individual to exceed the limit.