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Gifting from Tax Deferred Accounts
Old 07-28-2008, 07:57 AM   #1
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Gifting from Tax Deferred Accounts

Good morning--

I know an individual who wants to make a gift to his children. The bulk of his assets are in IRA's (traditional) and 401-K's. If he removes assets from the tax deferred accounts, I told him I believe he would have to pay ordinary income taxes on the assets he removes--he does not want to do this (no surprise there). He asked about the possibility of giving his kids shares in the mutual funds in his IRA's without liquidating them--e.g. just transfering the shares to them. I told him I did not think this would work--that it was still likely a taxable event since the shares were coming out of his tax deffered account. I said I knew of no way to avoid this tax hit.

Was I correct?

Thanks.

Thanks.
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Old 07-28-2008, 11:02 AM   #2
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Yes you are correct.

The only way the IRA can be transferred to his kids is on his death.

Withdrawals from the IRA will of course be taxable.
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Old 07-28-2008, 01:23 PM   #3
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Name them as beneficiaries of his IRA. If the IRA is a significant portion of his retirement assets, and would disenfranchise his spouse upon his death, he could buy a life insurance policy equal to the amount of the IRA or a little more to make sure she's taken care of..........

As benficiary IRA's, his kids only have to take out their yearly RMD. Assuming of course they are many years younger, deferring taxes for another 30 years or so will really help his kids........
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IRA gifting
Old 07-28-2008, 07:56 PM   #4
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IRA gifting

He'll receive a 1099-R for any distribution from his IRA.

A better suggestion might be for grandpa to make withdrawals and buy a wealth replacement insurance policy (take "just enough" from the IRA to push him right up to the limits of his income tax bracket).
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Old 07-29-2008, 12:14 AM   #5
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Quote:
Originally Posted by stephenandrew View Post
I know an individual who wants to make a gift to his children. The bulk of his assets are in IRA's (traditional) and 401-K's.
. . . .
He asked about the possibility of giving his kids shares in the mutual funds in his IRA's without liquidating them--e.g. just transfering the shares to them. I told him I did not think this would work.....
Your acquaintance needs to be reminded that IRA stands for Individual Retirement Account. It is not a Joint Account. Other people can only be beneficiaries of the account, they cannot share ownership of the account or its contents.

Your advice was correct.

Cheers!
--Linney
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Old 07-29-2008, 06:37 AM   #6
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distributions and contributions must be made in cash. Unlike a non-qualified account, you can not transfer shares in-kind.
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