Should I gift money to my kids now or wait to save taxes?


Q. I have IRAs managed by Vanguard and am taking Required Minimum Distributions. We do not need the money now, nor do I think we will. It is about $530,000, we have a mortgage of about $200,000 with a home value of about $650,000. All of our money is in a trust for our children. Would it be better to start gifting money to our children now to avoid large taxes at our deaths? We are 70 and 71 years old.
— Trying to decide

A. There’s no easy answer to this question without you doing a full financial plan.

For starters, you say you may not need the money but if either of you end up needing long-term care, it could easily cost well over $100,000 a year. You don’t currently qualify for Medicaid, but if you try to apply someday, the program will look back at five years of your financials, including the gifts you give – and that could lead to a long penalty period. It could be worth holding on to your money for that reason alone.

There are other reasons why this isn’t an easy answer.

For example, if your children are in the highest tax bracket and you are in the lowest, you may consider withdrawing more from the IRAs, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston. If that’s reversed, then maybe not.

Another choice? If you are philanthropically inclined, you can make direct donations to a charity from your IRAs without being taxed on the distributions, Karu said.

Furthermore, he said, given the current estate tax limits, unless you are exceedingly wealthy, it won’t come into play, he said.

“Also, keep in mind that upon your death, your children have the option of taking the IRA proceeds as a lump sum, over five years, or over their lifetimes,” he said.

Note that also could change. If Congress passes the SECURE Act, one provision will eliminate the option of taking inherited IRA distributions over the beneficiary’s lifetime and instead, distributions would have to be taken over five or 10 years, depending on how the final bill shakes out. You can learn more about that here.

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This story was originally published Oct. 8, 2019. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.