Giving large amount of money to adult child is that okay?

-Okay I will try and ask this as best as possible by setting up a moch scenario. If someone had an ira not an roth ira, just a regular ira...and say they did really well in there ira and wanted to give there kid who was an adult over 18 an amount of money say $200,000... And say that parent is over 60 so they don't have withdraw penalty, a couple things. First that $200,000 to be withdrawn from ira would get taxed, federal tax and then state tax, I think it would need to be paid the next tax year, not sure when tax would be paid just guessing. Now, if that $200,000 was with drawn from ira, and then a check was writen to the child, it would exceed the $13,000 maximum allowed gift to pay no tax, I think that it correct. Would there be a double tax on that $200,000. Meaning would the parent have to pay taxes on that $200,000 on that amount withdrawn next year twice? It seems like any money withdrawn from ira would be taxed and that parent would have to pay the taxes the next tax year at tax time, I can't imagine someone would get taxed twice. I apologize for the horrible grammar and run on sentences, it's more just my thoughts all put down. Well anyways, if you know a lot about ira's taxes and such please help me out with some information. If the above scenario played out am I right about what I said, meaning the parent would only get taxed once on that $200,000 being withdrawn on that money provided there over 60? If there are any points I am incorrect about please point them out thanks.Sure, you can gift an adult child money. It's the same as leaving money to them in a will, except if you are alive.



For 2 years, the gift tax exclusion is $5,000,000. Usually it's $1,000,000. Meaning that the first X in taxable gifts won't require the giver to get out their checkbook. Gifts that don't have to be reported are that those that are less than $13K in one year.



As far as your scenario of a parent who wants to take $200K out of an IRA and then gift it to their child. The IRS treats this as two separate actions. Taking $200K out of the IRA creates $200K of taxable income to the parent. After taxes, they may have $140K left. Note, even though I believe the tax bill would be about $60K, the custodian probably will only withhold $20K, meaning the parent needs to pay $40K (plus possible estimated tax penalty) when they file the following tax season.



The gift is a separate deal. It doesn't reduce the tax bill in the slightest. Since it's over $13K, the parent files a gift tax form for the amount given and uses up $127K of their lifetime exclusion.



The gift tax is an estate tax. It's a wealth tax and NOT an income tax. So the gift tax, even when charged is NOT double taxation.you will be taxed on your IRA withdrawal, that is one transaction

now you plan to gift your adult child and amount(not necessarily specified)

gifts of $13000 a year(or $26000 for a married couple) are not taxable to either

you have a lifetime limitation of $5 mil and each year you gift any you need to file a 709 to report that gift
There are 2 separate taxes at work here -- income taxes and gift taxes. They are totally separate and distinct matters unrelated to each other.



That said, until you exhaust your lifetime gift tax exclusion (currently the same as the $5,000,000 estate tax exclusion) you won't pay any gift tax at all. Do bear in mind that any gift tax exclusion used during your lifetime reduces the estate tax exclusion dollar-for-dollar. If your projected estate value plus the total of all gifts that exceed the annual exclusion (currently $13,000) will be less than $5,000,000 then you can gift away tax-free to your heart's content.