topic Is A Distribution To A Beneficiary Of A Traditional IRA Subject To Gift Tax? in Retirement tax questions

Is A Distribution To A Beneficiary Of A Traditional IRA Subject To Gift Tax?

Romper — Wed, 24 Mar 2021 04:44:15 GMT

Example:

Primary beneficiary of a decedent's Traditional IRA is a daughter.

Is that distribution subject to a gift tax (Form 709)?

I believe I read that distributions to someone identified as a beneficiary do not qualify as gifts subject to a gift tax. Can anyone identify a source for this?

Re: Is A Distribution To A Beneficiary Of A Traditional IRA Subject To Gift Tax?

Anonymous_ — Wed, 24 Mar 2021 14:12:53 GMT

@Romper wrote:
I believe I read that distributions to someone identified as a beneficiary do not qualify as gifts subject to a gift tax. Can anyone identify a source for this?

Section 2501(a)(1) of the Code; the gift tax applies to gifts made by individuals.

See https://www.law.cornell.edu/uscode/text/26/2501

Re: Is A Distribution To A Beneficiary Of A Traditional IRA Subject To Gift Tax?

dmertz — Wed, 24 Mar 2021 15:00:45 GMT

An inheritance is simply not a gift. Inheritance and gifting are two different, independent ways that property transfers.

Even if it was a gift, it's the transferor, not the transferee, that is subject to gift tax.

Distributions from a retirement account to a beneficiary are Income in Respect of a Decedent. IRD is deductible on the beneficiary's individual tax return (Schedule A) to the extent of the beneficiary's share of federal estate tax paid by the estate with the estate's filing of an Estate Tax Return (Form 706).

Re: Is A Distribution To A Beneficiary Of A Traditional IRA Subject To Gift Tax?

Romper — Wed, 24 Mar 2021 15:33:35 GMT

Thankyou for your reply...

The link you provided and your note "gifts by Individual" led to the following in a Google search:

An IRA is its own financial and legal entity, separate from your personal finances. ... All legal documents related to an IRA-owned asset must be in the name of the IRA, not your personal name. The IRA is the owner of the assets, not the person who is the IRA holder.

Based on the above, it seems clear that a Form 709 would not be required for a distribution to a beneficiary following the death of the IRA owner.

Re: Is A Distribution To A Beneficiary Of A Traditional IRA Subject To Gift Tax?

Romper — Wed, 24 Mar 2021 15:51:31 GMT

Thankyou dmertz...

Assuming there was no federal estate tax due because of the lifetime exemption, could you provide an example relative to your comment:

"IRD is deductible on the beneficiary's individual tax return (Schedule A) to the extent of the beneficiary's share of federal estate tax paid by the estate with the estate's filing of an Estate Tax Return (Form 706)".

Re: Is A Distribution To A Beneficiary Of A Traditional IRA Subject To Gift Tax?

Anonymous_ — Wed, 24 Mar 2021 17:13:57 GMT

@Romper

Deductible by the beneficiary on Line 16 of Schedule A.

See https://www.irs.gov/instructions/i1040sca#idm140356993300496

Note the filing requirements for Form 706:

https://www.irs.gov/instructions/i706#idm139646240247280

Re: Is A Distribution To A Beneficiary Of A Traditional IRA Subject To Gift Tax?

Romper — Wed, 24 Mar 2021 17:25:46 GMT

Thankyou

Re: Is A Distribution To A Beneficiary Of A Traditional IRA Subject To Gift Tax?

dmertz — Wed, 24 Mar 2021 18:26:37 GMT

The IRD deduction is to roughly compensate for otherwise double taxation (income tax plus estate tax). If there was no estate tax due by the estate, there is no double taxation and the beneficiary gets no deduction for the IRD.