Gifting a IRA to avoid RMD

[ripvanwinkle]

I have a traditional IRA. Later this year I'll have to start taking out the RMD. If I gift transfer $17,000 of stocks, not cash, to my daughter do I avoid the taxes of the RMD?

[jerseygirl]

Nope taking money out of a traditional IRA triggers taxes - regular income taxes not capital gains. No pass for gift unless the RMD is DIRECTLY sent from the IRA custodian to a 501c3 charity. And if sent directly to charity, you can’t take a charity deduction for this on your taxes

If it’s a Roth you’re fine sending to yourself or anyone tax free

[ripvanwinkle]

Jan 19, 2024 9:20:23 GMT -5 jerseygirl said:

Nope taking money out of a traditional IRA triggers taxes - regular income taxes not capital gains. No pass for gift unless the RMD is DIRECTLY sent from the IRA custodian to a 501c3 charity. And if sent directly to charity, you can’t take a charity deduction for this on your taxes

If it’s a Roth you’re fine sending to yourself or anyone tax free

Well I see the IRS have covered all their bases.

[thyme4change]

How dare they ask you to pay taxes - on all that pre-tax money you saved all those years. Maybe we should just do away with IRAs and 401ks - that way the IRS can just take income tax when someone actually earns it.

They could do away with taxing retirement savings and put excessive wealth taxes on people who have more than 50 million dollars. Or we could cut the military budget in half and give everyone in the USA a decent lifestyle.

[minnesotapaintlady]

I mean, think about it.  Everyone would just be "giving" their money to their family members to avoid paying taxes.  Why stop at 17K?  Gift her 100K/year!

[soupandstew]

We don't have the offspring to give us skin in this game, but I see some posters not only giving cash gifts to their adult children, but also titling properties and T-bills either totally or partially in the kid's name.   I'm mildly curious how that works.  I understand that the cash gift thing is now at $17K or maybe $18K (per person, maybe double for a couple?), but how does that interface with titling real properties or investments (T-bills, CD's, stocks, whatever) to the kid at the same time?  What is the tax hit to the giver or the recipient?  

[minnesotapaintlady]

Jan 19, 2024 18:01:19 GMT -5 soupandstew said:

We don't have the offspring to give us skin in this game, but I see some posters not only giving cash gifts to their adult children, but also titling properties and T-bills either totally or partially in the kid's name.   I'm mildly curious how that works.  I understand that the cash gift thing is now at $17K or maybe $18K (per person, maybe double for a couple?), but how does that interface with titling real properties or investments (T-bills, CD's, stocks, whatever) to the kid at the same time?  What is the tax hit to the giver or the recipient?  

You can gift as much as you want.  The 17K amount is just the cutoff before you have to report it so it's subtracted from your lifetime exemption for gifts (currently 13.61 million...per person...so double for a couple).  When you die, your estate pays gift taxes on any amount over the 13.61 million.  This is federal.  States may have a lower cut off to pay gift tax.

The receiver does not pay taxes on gifts received.

[TheOtherMe]

Jan 19, 2024 15:07:44 GMT -5 ripvanwinkle said:

Jan 19, 2024 9:20:23 GMT -5 jerseygirl said:

Nope taking money out of a traditional IRA triggers taxes - regular income taxes not capital gains. No pass for gift unless the RMD is DIRECTLY sent from the IRA custodian to a 501c3 charity. And if sent directly to charity, you can’t take a charity deduction for this on your taxes

If it’s a Roth you’re fine sending to yourself or anyone tax free

Well I see the IRS have covered all their bases.

Actually it's Congress, starting in the House of Representatives who passes tax law.  The IRS enforces it.  You can thank your representatives.

[countrygirl2]

I've read they are reducing back to $7M each the amount to be gifted, I don't think that will affect too many people here except some of the huge farmers that own thousands of acres here.

[soupandstew]

Jan 25, 2024 17:18:15 GMT -5 countrygirl2 said:

I've read they are reducing back to $7M each the amount to be gifted, I don't think that will affect too many people here except some of the huge farmers that own thousands of acres here.

I haven't seen anything about that reduction.  Can you share?

I found this on NerdWallet. How the lifetime gift tax exclusion works

On top of the $17,000 annual exclusion in 2023 ($18,000 in 2024), you get a $12.92 million lifetime exclusion in 2023 ($13.61 million in 2024). And because it’s per person, married couples can exclude double that in lifetime gifts. That comes in handy when you’re giving away more than the annual exclusion amount.  www.nerdwallet.com/article/taxes/gift-tax-rate

That would be over $27 million per couple in 2024 for the lifetime exclusion.

[azucena]

Jan 25, 2024 17:18:15 GMT -5 countrygirl2 said:

I've read they are reducing back to $7M each the amount to be gifted, I don't think that will affect too many people here except some of the huge farmers that own thousands of acres here.

The mega farmers use life insurance to help with wealth transfer. If you're rich enough to pay the premium on several millions in coverage, the death benefit passes to your heirs tax free.

[minnesotapaintlady]

Jan 25, 2024 18:21:19 GMT -5 soupandstew said:

Jan 25, 2024 17:18:15 GMT -5 countrygirl2 said:

I've read they are reducing back to $7M each the amount to be gifted, I don't think that will affect too many people here except some of the huge farmers that own thousands of acres here.

I haven't seen anything about that reduction.  Can you share?

I found this on NerdWallet. How the lifetime gift tax exclusion works

On top of the $17,000 annual exclusion in 2023 ($18,000 in 2024), you get a $12.92 million lifetime exclusion in 2023 ($13.61 million in 2024). And because it’s per person, married couples can exclude double that in lifetime gifts. That comes in handy when you’re giving away more than the annual exclusion amount.  www.nerdwallet.com/article/taxes/gift-tax-rate

That would be over $27 million per couple in 2024 for the lifetime exclusion.

The expansion of the gift tax happened with all the tax changes Trump put in place in 2018 and all (except the corporate cuts) were temporary and set to expire in 2026 (things like the doubled standard deduction and the decreased tax brackets are going to sunset as well).

www.irs.gov/newsroom/estate-and-gift-tax-faqs

[soupandstew]

Jan 25, 2024 21:23:58 GMT -5 minnesotapaintlady said:

Jan 25, 2024 18:21:19 GMT -5 soupandstew said:

I haven't seen anything about that reduction.  Can you share?

I found this on NerdWallet. How the lifetime gift tax exclusion works

On top of the $17,000 annual exclusion in 2023 ($18,000 in 2024), you get a $12.92 million lifetime exclusion in 2023 ($13.61 million in 2024). And because it’s per person, married couples can exclude double that in lifetime gifts. That comes in handy when you’re giving away more than the annual exclusion amount.  www.nerdwallet.com/article/taxes/gift-tax-rate

That would be over $27 million per couple in 2024 for the lifetime exclusion.

The expansion of the gift tax happened with all the tax changes Trump put in place in 2018 and all (except the corporate cuts) were temporary and set to expire in 2026 (things like the doubled standard deduction and the decreased tax brackets are going to sunset as well).

www.irs.gov/newsroom/estate-and-gift-tax-faqs

Thanks minnesotapaintlady.  The gift tax won't impact us but the standard deduction and tax brackets stuff will.  Nothing we can do strategically to avoid it, but I appreciate the heads up.  

[CCL]

Jan 25, 2024 21:23:58 GMT -5 minnesotapaintlady said:

Jan 25, 2024 18:21:19 GMT -5 soupandstew said:

I haven't seen anything about that reduction.  Can you share?

I found this on NerdWallet. How the lifetime gift tax exclusion works

On top of the $17,000 annual exclusion in 2023 ($18,000 in 2024), you get a $12.92 million lifetime exclusion in 2023 ($13.61 million in 2024). And because it’s per person, married couples can exclude double that in lifetime gifts. That comes in handy when you’re giving away more than the annual exclusion amount.  www.nerdwallet.com/article/taxes/gift-tax-rate

That would be over $27 million per couple in 2024 for the lifetime exclusion.

The expansion of the gift tax happened with all the tax changes Trump put in place in 2018 and all (except the corporate cuts) were temporary and set to expire in 2026 (things like the doubled standard deduction and the decreased tax brackets are going to sunset as well).

www.irs.gov/newsroom/estate-and-gift-tax-faqs

This is why I've been doing Roth conversions every year. Maybe we will get lucky and they will extend them?

[minnesotapaintlady]

Jan 26, 2024 5:31:29 GMT -5 CCL said:

Jan 25, 2024 21:23:58 GMT -5 minnesotapaintlady said:

The expansion of the gift tax happened with all the tax changes Trump put in place in 2018 and all (except the corporate cuts) were temporary and set to expire in 2026 (things like the doubled standard deduction and the decreased tax brackets are going to sunset as well).

www.irs.gov/newsroom/estate-and-gift-tax-faqs

This is why I've been doing Roth conversions every year. Maybe we will get lucky and they will extend them?

My guess is some things get made permanent and some are allowed to revert.  And it will be the last freaking minute in December of 2025 before they figure it out.

The doubled standard deduction and elimination of personal exemptions I hope stays.  That one was big for me.

[TheOtherMe]

I want the standard deduction to stay.  I get way more tax benefit from that than I did from the previous standard deduction.  I would go back to itemizing and I'd rather not.

[seriousthistime]

A related question on RMDs...

This is my first year of required distributions.  At this point I don't need the distributions to cover expenses.  I was thinking of taking the distributions (monthly) and adding them to a taxable investment account, and paying the income tax on the distribution.  The gains on the money in the investment account would eventually be taxed.  I'm reading that it is possible to take the RMD money from that taxable account and put some of it into my Roth, in which gains are not taxed.  Is this correct?  The RMD itself would be taxed, and if I'm understanding this correctly, the move from one after-tax account to another after-tax account (the Roth) wouldn't lead to an extra tax liability, and would allow the gains to grow tax-free in the Roth vs. the gains in the taxable account, which would be taxed.

I'm cognizant of the need to stay under the IRMAA threshold.  If my SS is included (at 100%) in my MAGI, I am bumping dangerously close to the next IRMAA bracket as best I can tell, just guessing on what the brackets will be in 2026. 

If I invest the RMDs into my Roth, do the Roth contribution limits apply?  I see the limit decreases gradually from $8,000 to $0 if your income exceeds a certain amount.

[CCL]

Seriousthistime are you still working? You need to have earned income (and there are limits) to contribute to a Roth. If you have a traditional IRA, you may be able to convert some of that to your Roth.

[minnesotapaintlady]

Jan 26, 2024 12:07:03 GMT -5 seriousthistime said:

A related question on RMDs...

This is my first year of required distributions.  At this point I don't need the distributions to cover expenses.  I was thinking of taking the distributions (monthly) and adding them to a taxable investment account, and paying the income tax on the distribution.  The gains on the money in the investment account would eventually be taxed.  I'm reading that it is possible to take the RMD money from that taxable account and put some of it into my Roth, in which gains are not taxed.  Is this correct?  The RMD itself would be taxed, and if I'm understanding this correctly, the move from one after-tax account to another after-tax account (the Roth) wouldn't lead to an extra tax liability, and would allow the gains to grow tax-free in the Roth vs. the gains in the taxable account, which would be taxed.

I'm cognizant of the need to stay under the IRMAA threshold.  If my SS is included (at 100%) in my MAGI, I am bumping dangerously close to the next IRMAA bracket as best I can tell, just guessing on what the brackets will be in 2026. 

If I invest the RMDs into my Roth, do the Roth contribution limits apply?  I see the limit decreases gradually from $8,000 to $0 if your income exceeds a certain amount.

You have to have earned income to contribute to a Roth IRA, not just retirement account withdrawals and SS.  You can convert traditional IRA money to Roth, but conversions don't count towards your RMD. 

[seriousthistime]

Jan 26, 2024 13:31:15 GMT -5 minnesotapaintlady said:

Jan 26, 2024 12:07:03 GMT -5 seriousthistime said:

A related question on RMDs...

This is my first year of required distributions.  At this point I don't need the distributions to cover expenses.  I was thinking of taking the distributions (monthly) and adding them to a taxable investment account, and paying the income tax on the distribution.  The gains on the money in the investment account would eventually be taxed.  I'm reading that it is possible to take the RMD money from that taxable account and put some of it into my Roth, in which gains are not taxed.  Is this correct?  The RMD itself would be taxed, and if I'm understanding this correctly, the move from one after-tax account to another after-tax account (the Roth) wouldn't lead to an extra tax liability, and would allow the gains to grow tax-free in the Roth vs. the gains in the taxable account, which would be taxed.

I'm cognizant of the need to stay under the IRMAA threshold.  If my SS is included (at 100%) in my MAGI, I am bumping dangerously close to the next IRMAA bracket as best I can tell, just guessing on what the brackets will be in 2026. 

If I invest the RMDs into my Roth, do the Roth contribution limits apply?  I see the limit decreases gradually from $8,000 to $0 if your income exceeds a certain amount.

You have to have earned income to contribute to a Roth IRA, not just retirement account withdrawals and SS.  You can convert traditional IRA money to Roth, but conversions don't count towards your RMD. 

I suspected that.  I found a couple of places that said in calculating MAGI for this purpose, the untaxed portion of Social Security is not added back in.  It sort of implied that the taxed portion was treated differently.  But upon further checking, it seems you are right. 

[jerseygirl]

You must take RMD out and RMDs can’t be used for IRA or Roth. After RMD taken then you can transfer funds from the IRA to a Roth. You’ll pay taxes on any funds coming out of the IRA

[seriousthistime]

Right, that's what I was thinking of, but it seems unless I have earned income (as compared to pension and SS) I can't do that. 

[tallguy]

Jan 27, 2024 12:24:20 GMT -5 seriousthistime said:

Right, that's what I was thinking of, but it seems unless I have earned income (as compared to pension and SS) I can't do that. 

Okay, to be clear, you cannot CONTRIBUTE to a Roth if you do not have any earned income.  You can CONVERT to a Roth at any time whether you have earned income or not, but if you are taking RMDs those must be satisfied BEFORE you do a conversion.  As an example, if your first-year RMD is $30,000 you must take that $30,000 out as a withdrawal.  You don't have to spend it, but you do have to take it.  Give it away, invest it in a taxable account, whatever.  After that, you can convert additional monies to a Roth.  If you want to convert an additional $30,000 you can do that.  Your total IRA distribution in that case would be $60,000, and all of it is taxable as ordinary income.  The first $30,000 satisfies your RMD and the other $30,000 can be converted. 

[seriousthistime]

Oh, that's an important distinction.  Thank you.  I'll check it out.