Can I Gift Monies From an IRA?

Investing in an Individual Retirement Arrangement allows you to accumulate funds for retirement. When you are ready to begin withdrawing from your IRA, you may want to help family members or close friends by gifting money from the account. Gifting money will not reduce your taxable income, unless the gifts are to a charity. If you give an excessive amount to non-charitable organizations, you might need to pay taxes on the gift.

About IRAs

A traditional IRA is available to participants under age 70 1/2. At the time of publication, the maximum amount you can contribute to a traditional IRA is the lesser of $5,000 ($6,000 if you are age 50 or older), or your taxable earnings for the year. Contributions to a traditional IRA are tax deferred until withdrawal. At age 70 1/2, you must begin making withdrawals or face a 50 percent penalty on the amount not taken. A Roth IRA is similar to a traditional IRA. However, contributions are made using after-tax earnings and not taxed when you withdrawal the funds. The same annual contribution limits apply for the Roth as with traditional IRAs. After the account is established for a minimum of five years and you reach age 59 1/2, tax-free withdrawals are allowed.

Freedom to Give

When you make qualified withdrawals from your traditional IRA, you are free to do as you please with the funds. There are no requirements on how you spend the money. You can gift freely to family members, friends or charities.

Gift Taxes

You are allowed to gift up to $13,000 a year to each person without paying taxes. Married couples are able to gift $25,000 per year. At the time of publication, you are not responsible for paying taxes on gifts unless you gift more than $5 million in your lifetime. If you gift $12,000 to 10 people in a year, this amount will not count toward your lifetime limit.

Distribution Taxes

You must take a distribution if you wish to gift funds to a family member or friend from your traditional IRA, which you are required to report as income. Although you do not have to report a gift given or received up to $13,000, it is still a distribution to you first and then taxed accordingly. Married couples are allowed to gift $26,000 a year. If the amount of the gift exceeds the gift exemption limit, you are required to report the gift using the gift tax form. Recipients do not pay taxes on gifts. Distributions from a Roth IRA are not reported as income.