Can You Gift an IRA to a Family Member?

IRAs are one of the most powerful retirement planning tools available, but they aren’t commonly known for their flexibility. There are plenty of circumstances in which you would want to give your hard-earned retirement account to a family member or heir, but can you gift an IRA to a family member? And what tax implications would it have for both of you?

While you cannot directly gift an existing IRA to a family member while you are alive, beneficiaries can inherit the assets in the IRA after the account holder’s death. The tax implications for the recipient depend on the type of IRA and the beneficiary’s relationship to the account holder, with recent legislative changes potentially affecting inherited IRAs.

While this can sound complicated, the retirement and tax planning professionals at Avidian Wealth Solutions are here to walk you through all things IRA and gifting, including how it is possible, what the tax implications are, and how a new law has changed the way 529s and Roths interact. 

Can I transfer my IRA to a family member?

Can you give your IRA to someone? Many people are under the impression that you can gift your IRA to a loved one, possibly because it is possible to inherit an IRA from a deceased relative. However, you cannot give an IRA account to another person while you are still living.

Although IRA accounts cannot be given to anyone, and the accounts themselves are only transferable to others in the event of your death or divorce, there are still a few ways in which you can gift assets from an IRA to a family member during your lifetime.

Can IRA contributions be gifted?

Can I gift money to my child from my IRA? Yes! There are a couple of ways to do this, by either gifting money from your IRA or contributing to a family member’s IRA. 

1. You can withdraw funds from your IRA account and make a gift of them to a family member. 
2. You can contribute up to $7,000 directly to a family member’s IRA every year. These contributions will count towards your annual limit for tax-free gifts. 

Gifting funds from your IRA and contributing to a family member’s IRA are powerful retirement income planning and tax planning strategies that may be able to both help you in the short term and set your family up for success for generations in the long term. 

Continue reading: What type of IRA should I open?

Is a gift from an IRA taxable?

Gifts in the form of funds from your IRA account are taxable because money withdrawn from a traditional IRA is treated as income. There are a few fees and penalties that you should consider when making a gift from your IRA.

1. All withdrawals from a traditional IRA account are subject to income tax.
2. You may need to file a gift tax return for gifts over the annual exclusion limit, which is $18,000 per recipient in 2024.
3. If you are making a withdrawal before reaching the age of 59 ½, you may be required to pay a 10% early withdrawal penalty.

Other than these considerations, what you do with the money from your IRA is yours to decide. There are no limitations on what you can or cannot use the funds for, whether you’re paying off a loan or putting it towards your granddaughter’s tuition. 

Can you gift from an IRA without paying taxes?

While you can technically gift funds that have been withdrawn from your IRA account tax-free under the annual exclusion ($18,000 in 2024), you will still need to pay income tax on the funds themselves when you make a withdrawal.

IRA owners over the age of 70 ½ who are currently required to take RMDs can make direct transfers to qualified charities up to an annual maximum of $100,000 without having to include this distribution in their taxable income. 

These Qualified Charitable Distributions or QCDs offer a tax-free way for IRA owners to make gifts, and count towards the RMDs for the year for IRA owners over 73.

Continue reading: What are RMDs? 

New law: 529 rollover to Roth IRA

Gifting to tax-advantaged education accounts like 529s and contributing to younger family members’ IRAs are some of the most reliable and accessible college funding strategies for high-net-worth individuals.

Thanks to the SECURE 2.0 Act, and the new 529-to-Roth rollover provision which took effect in 2024, it is now possible to transfer (or rollover) unused funds from a Texas 529 plan into a Roth IRA. Here’s what you need to know:

• The 529 account must have been open and in the beneficiary’s name for at least 15 years to qualify for rollover. 
• Conversions are still subject to yearly Roth IRA contribution limits.
  • This means that standard contributions to the Roth will lower the amount that can be converted for that given year. 
• The lifetime limit for rollover from a 529 to a Roth is $35,000 per beneficiary.
• The Roth must be in the same name as the beneficiary of the 529 plan. 
• Contributions made within the last five years are ineligible for rollover. 
• The transfer must be direct. You cannot take a distribution from the 529 plan and try to deposit it into the Roth account. 

Because 529 spending is limited to education, funds sitting in a 529 account would often languish or incur tax penalties if withdrawn for usages that fall outside of the approved list, but with Roth IRA rollovers you can free up that money to go into a Roth IRA, giving the beneficiary much more flexibility and freedom come retirement. 

Looking for help navigating the nuances of charitable giving, estate planning, and taxes? Let’s talk.

So, can you gift an IRA to a family member? The answer is unfortunately no, not while you’re living. Although you cannot gift an IRA to a family member, there are still ways in which you can gift the funds in your IRA as you see fit such as making a withdrawal and gifting the withdrawn funds to a loved one or charity. Keep in mind though, that there are tax implications and regulations to how this can be done.

We always recommend working with a trusted financial advisor when moving around retirement funds, making gifts, or making any decisions that might have far-reaching tax implications. A financial professional can provide the careful planning and extensive financial and legal knowledge needed to plan for generations to come. 

Avidian Wealth Solutions offers high-net-worth retirement planning in Houston, Austin, Sugar Land, and The Woodlands. If you are interested in making a gift of money in one of your retirement accounts and are curious about how it will actively affect your retirement plans, schedule a conversation with one of our advisors today!

More Helpful Articles by Avidian: 

• What Are The Benefits of Thinking About Retirement Expenses Now?
• How To Keep Property In The Family Forever
• 10 Questions to Ask a Financial Advisor at Your Initial Consult
• What Are The New FinCEN Requirements?
• What You Need To Know About 529 Accounts for Grandchildren

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