Inherited IRA distribution

Submitted by Robert Roselli on Tue, 2023-07-18 15:54

I have 2 clients, who are brother and sister. They both have to cut checks to a law firm. They have the option to send 2 separate checks, but I wanted to check the gift tax consequences if they send one.

One sibling moved funds from their Inherited IRA to their brokerage account and withheld the proper federal and state taxes, we’re good there. I was thinking of having the other sibling take a distribution from his Inherited IRA over to his sister’s brokerage account and then send one check. He will withhold the proper federal and state taxes also.

My question is a person takes a distribution out of their Inherited IRA and transfers the funds to their sibling’s brokerage account, will that trigger a gift tax? I am drawing a blank.



Submitted by Alan - IRA critic on Tue, 2023-07-18 19:28

Yes, this is treated as a taxable distribution and transfer subject to gift tax. The annual gift exclusion is 17,000, but amounts gifted in excess of that will require a 709.

Submitted by Jay Wiedwald on Tue, 2023-07-18 19:39

If the sole purpose of depositing the funds into the sibling’s account is to allow a single check to be written out of that account, and if that is in fact what happens, then I don’t see this as a gift since the funds will be used to satisfy the individual’s obligation. It’s really a channel to pay a bill, not a “free-will” gift.

Submitted by Robert Roselli on Tue, 2023-07-18 20:09

I needed to get the checks sent out, so I sent them out of each Inherited IRA directly to the law firm. Now I think they are each subject to income tax only.

Submitted by Alan - IRA critic on Tue, 2023-07-18 20:15

That’s probably best, since it eliminates the paper trail documentation that would otherwise have been needed to show that the one check payment was not a gift.

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