Gifting IRA Annuities

[Unregistered]

A client has an IRA Annuity that is the result of her deceased husband's profit sharing plan. Can she gift this Annuity account to her son? If so, does it retain its character as an IRA (taxable only when taken out) to the son? Also, if the Annuity trustee charges a penalty for withdrawal, is that penalty deductible from the proceeds reported on the Gift Tax return?

The Tax Materials book speaks well concerning regular gifts, but I can't find anything on tax-deferred items.

[Bees Knees]

Qualified plans under section 401(a) and individual retirement accounts under section 408(a) both have the same requirement, namely, that they must be set up for the exclusive benefit of the individual participant, or his or her beneficiary.

What that basically means is that if you want the tax favorable treatment to continue, you can’t let anyone else benefit. That is why there are special rules for required minimum distributions starting at age 70½ in most cases, and other special rules when a beneficiary inherits one of these accounts. That is why there are also special rules that must be followed to transfer an IRA or retirement plan to an ex-spouse in a divorce proceeding.

If you don’t follow these rules, the transfer will trigger a taxable distribution to the participant. There is no provision, other than through designated beneficiary or domestic relations orders, to transfer IRAs or qualified plans to others without triggering tax on the distribution. If you want to gift the funds, the individual participant would have to pay tax on the distribution, not the one who received the gift.

[Joe Btfsplk]

Gifting IRA

The only way an IRA can pass to another person is thru inheritance, not by gift.