Can $12000 per year per child be gifted without inheritance tax even if the money comes from an IRA or 401k?

Question

The gift giver is 67 years old with 401k and IRA. The receivers are her children. What kind of taxes can be avoided, and which still must be incurred, and at what rate then?

Thanks so much.

Answer 1

If you take money out of your IRA or 401K, you'll pay income tax on the distribution. After that, it's yours to do whatever you want with it, so yes you can give each of your children up to $12K a year of that money that came out of the IRA or 401K without any futher tax consequences to you, or any tax to them.

You can't give them an interest in your IRA or 401K while you are still alive - that can only be done as an inheritance, not a gift.

Answer 2

you are able to purely provide your tax-deferred retirement money to your toddlers as an inheritance, no longer as a latest once you're nonetheless alive, so the $12,000 shrink on presents would not enter into it in any respect. If there's a federal inheritance tax, the valuables will pay it - there'll purely be inheritance tax if the valuables is over $2 million. your toddlers won't pay the inheritance tax. yet while they inherit the money nonetheless in an IRA or 401K, they are going to could pay earnings tax on the money while they take it out.

Answer 3

You will have to take a distribution from your IRA or 401k before you give it to anyone. When you take the distribution, it is taxable income to you, at your current tax rate. The fact that you are giving it to someone does not change the income tax you have to pay.

If you give $12,000 or more in one year to an individual, you will have to file a gift tax return. However, you will not owe any gift tax until your lifetime gifts as reported on your gift tax returns exceed $1 million dollars.

If you bequeath your 401k or IRA to your children, when they take distributions, they will pay income taxes at their current tax rates.