Can You Gift an IRA to Another Person Before Death?

An Individual Retirement Account (IRA) serves as a tax-advantaged savings vehicle designed to help individuals accumulate funds for retirement. Unlike traditional bank accounts or brokerage investments, IRAs are subject to specific rules governing contributions, withdrawals, and transfers established by the Internal Revenue Service (IRS). A common misconception is that an IRA can be “gifted” to another person during the owner’s lifetime. However, the unique nature of these accounts means they cannot be directly transferred as a gift.

The Nature of IRA Ownership and Transfers

An Individual Retirement Account is fundamentally tied to the specific taxpayer who established it, identified by their Social Security number. These accounts are designed for personal retirement savings, and their structure does not permit a direct change of ownership from one living individual to another. IRS regulations ensure that the tax benefits associated with IRAs remain with the original account holder until specific conditions for distribution or transfer are met.

Attempting to “gift” an IRA by transferring the balance directly to someone else’s name is not permissible under current tax law. The integrity of an IRA’s tax-deferred or tax-exempt status relies on its direct link to the named account owner. Therefore, an existing IRA cannot be assigned or transferred to another living individual as a gift. Any attempt to provide funds from an IRA to another person during the owner’s lifetime requires a distribution from the IRA first. The original IRA owner must withdraw money, converting it into personal funds that can then be used for gifting.

Tax Consequences of Indirect Transfers

Since an IRA cannot be directly gifted, any attempt to provide funds from it to another person during the owner’s lifetime begins with a distribution to the IRA owner. When money is withdrawn from a traditional IRA, it is generally considered taxable income to the account owner in the year of the distribution, subject to ordinary income tax rates. If the IRA owner is under age 59½, the distribution may also be subject to an additional 10% early withdrawal penalty, unless a specific exception applies. For example, if an individual under 59½ withdraws $10,000 from their traditional IRA, they would owe income tax on the $10,000, plus an additional $1,000 penalty.

Once funds are distributed from the IRA and taxes (and potentially penalties) are paid, they become the personal property of the original IRA owner. The owner can then gift these funds to another individual. Such a gift is subject to federal gift tax rules, which are separate from the income tax rules applied to the IRA distribution. For 2025, an individual can gift up to $19,000 per recipient without incurring gift tax implications or requiring a gift tax return. Gifts exceeding this annual exclusion reduce the giver’s lifetime gift tax exemption, which is $13.61 million per individual for 2025. If a gift exceeds the annual exclusion, the excess counts against this lifetime exemption, and gift tax may be due from the donor if the exemption is exhausted. The recipient of a gift generally does not pay income tax on the gifted funds, nor do they owe gift tax.

Alternative Strategies for Financial Support

Individuals seeking to provide financial assistance can explore various strategies. One straightforward approach involves gifting cash directly from non-IRA sources, such as a checking or savings account. An individual can gift up to $19,000 per person annually in 2025 without any gift tax implications or the need to file a gift tax return.

If the funds intended for support are held within an IRA, the owner must first take a distribution from their account. After paying applicable income taxes and any potential early withdrawal penalties, the distributed funds become personal assets that can then be gifted. This method effectively converts retirement funds into personal cash that can be freely transferred as a gift.

Another strategy involves gifting cash to another person, who can then use those funds to contribute to their own IRA, provided they meet eligibility requirements. For 2025, an individual can contribute up to $7,000 to a Traditional or Roth IRA, or $8,000 if age 50 or older, provided they have earned income at least equal to their contribution amount. A gift of cash can enable the recipient to make their own IRA contribution, helping them build retirement savings.

If married, one spouse can contribute to a spousal IRA for the benefit of the other spouse, even if the latter has little or no earned income. This is permissible as long as the contributing spouse has sufficient earned income to cover both their own IRA contribution and the contribution made on behalf of their spouse. This allows couples to maximize their combined retirement savings.

Estate Planning with IRA Beneficiaries

While an IRA cannot be gifted during the owner’s lifetime, proper estate planning ensures that the assets within the account are transferred as intended upon the owner’s death. The primary mechanism for this transfer is through beneficiary designations, which are an integral part of setting up and maintaining an IRA.

Beneficiary designations on an IRA supersede instructions in a will, meaning that funds will be distributed directly to the named beneficiaries regardless of what a will might state. This makes updating beneficiary information important after life events such as marriage, divorce, or the birth of children. Individuals typically name primary beneficiaries, who are the first in line to receive the assets, and contingent beneficiaries, who would inherit if the primary beneficiaries predecease the IRA owner.

When an IRA owner passes away, the designated beneficiaries inherit the account as an “inherited IRA.” The rules for inherited IRAs vary depending on the beneficiary’s relationship to the deceased owner. For non-spouse beneficiaries, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 generally requires the entire inherited IRA balance to be distributed by the end of the tenth calendar year following the IRA owner’s death. This is commonly known as the 10-year rule.

This 10-year rule means that while the non-spouse beneficiary does not have to take distributions every year, the entire account must be emptied by the end of the 10-year period. Distributions taken by the beneficiary are generally taxable as ordinary income. Proper beneficiary planning ensures a smooth transfer of assets and helps beneficiaries understand and navigate the tax implications associated with inherited IRAs. This serves as the method for passing on these retirement assets.