If you have gifting to loved ones on your mind, here are some related to taxes and logistics.
Gifting logistics
Unless you鈥檙e writing a check from your bank account, the logistics of gifting funds can get a bit complicated.
If you want to gift from your , your only option is to sell a chunk of it, then pay any taxes due, then write a check. That鈥檚 not terrible, so long as you understand the tax implications. IRA withdrawals are typically subject to ordinary income tax, along with penalties if you鈥檙e not yet 59陆. You could also trigger some knock-on tax effects like the income-related monthly adjustment amount. In other words, gifting from your IRA isn鈥檛 as seamless as making a qualified charitable distribution from your IRA or naming someone as a .
Things can also get tricky if you want your financial gift to go toward an investment account for someone else. It鈥檚 straightforward if you鈥檙e giving a gift to an adult with an eye toward setting them on an investing path: The recipient will have to set up the account, whether an IRA or a taxable brokerage account, and you can then write a check or transfer funds directly to the financial institution.
If you鈥檙e giving an investment gift to a child, you have options.
Gift tax: a nonissue for most
If you give $19,000 or less to any one individual in a single year, there are no reporting or tax requirements. Married couples can give twice that amount with no tax or reporting requirements.
Even if you give more than $19,000 to an individual in a single year, it鈥檚 not automatically subject to gift tax. Rather, anyone exceeding the gift-tax threshold in a single year must file the gift tax return form, and that excess amount counts against their lifetime exclusion amount. Only when those excess amounts (combined with the value of the individual鈥檚 estate) exceed the lifetime exclusion amount鈥攃urrently nearly $14 million鈥攄oes anyone actually owe taxes on those gifts. So that鈥檚 not a barrier for most people.
Tax benefits are limited
Because the lifetime gift/estate tax exclusion amount is currently so high, avoiding estate tax shouldn鈥檛 be a major motivation for most people to gift assets to individuals during their lifetimes鈥攁t least for now. The estate tax exclusion has been much lower in the past and could go lower again: It was $2 million as recently as 2008, for example. Moreover, some states levy their own estate taxes, and in most cases, they鈥檙e lower than the federal threshold.
In contrast with making gifts to qualified charities, you won鈥檛 be able to earn a tax deduction on your gift to an individual. The exception is a contribution to a 529 college savings plan; you may be eligible for a state tax deduction or credit.
In a similar vein, gifting appreciated assets is unlikely to remove the taxes due on the gains, though it will shift the tax burden to the recipient.
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This article was provided to The Associated Press by Morningstar. For more personal finance content, go to .
is director of personal finance and retirement planning for Morningstar.
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