Do I have to pay income when gifting my IRA money to fund another person's IRA? Thank you!

[jenny-lee635]

I read from investopedia that you can gift  your IRA to fund another person's IRA.  You don't have to pay gift tax.  DO I have to pay income tax.  I thought it's likewise transfer.  The money does not go through my hand.  It's a likewise transfer.

Thank you!

[Opus 17]

No. 

You can give money to another person for an IRA in their name, however that is subject to all the normal contribution rules and limits.  (Maximum $6500 for 2023, the person must have income earned from working, depending on their other income and tax situations, their IRA contributions might not be deductible, etc.). Where you get the money from doesn't matter.  If you withdraw the money from your IRA, you must pay the tax on it (and possibly a penalty).

In general, you must report any gift more than $16,000 per person per year, no matter where the funds come from, but gift tax is not owed until your lifetime total gifts exceed $12 million. 

It is impossible to make a tax-free gift from your IRA to someone else's IRA.  You can contribute to a charity directly from your IRA, and you can contribute to your own health savings account directly from your IRA (under certain limited conditions) but that's all.  

[dmertz]

The only way that you can gift money from your IRA to another person's IRA is to take a taxable distribution from your IRA to obtain the cash, then for the other person to make an IRA contribution (which you deposit on the other person's behalf.  So yes, the distribution from your IRA adds to your taxable income on which your tax liability is determined.

The maximum permissible IRA contribution is less than the annual gift tax exclusion, so in the absence of any other gifts you make to that person that would put the total, including the gifted IRA contribution, over the annual gift tax exclusion limit.

The other person must report enter the IRA contribution into TurboTax as if they had deposited the contribution themselves.  The result is the same as if you took a cash distribution from your IRA (incurring whatever tax liability results from the distribution), giving the cash to the other person and letting them deposit their IRA contribution.