You cannot gift money from an IRA to another person without paying taxes on the withdrawal

When you take money out of a traditional or Roth IRA, the IRS treats it as a distribution to you, not as a gift to someone else. That means you owe income tax on the withdrawal, even if your intention is to give the money away when ready. The person receiving the money does not owe gift tax — the tax burden falls on you, the account holder, when you withdraw.

The one exception is the may have access to charitable distribution, which allows you to move money directly from an IRA to a may have access to charity without counting it as taxable income. This option is only available if you are age 70½ or older and have a traditional or Roth IRA. The money must go straight from your IRA custodian to the charity — it cannot pass through your hands first.

Key Takeaways

  • Withdrawing money from an IRA to give to a family member or friend is taxable income to you in the year you withdraw it, regardless of who ends up with the money.
  • The person receiving the money owes no gift tax, because gift tax applies only to the giver, and only in rare cases involving very large amounts.
  • A may have access to charitable distribution lets you send IRA money directly to a charity if you are 70½ or older, and that money is not counted as taxable income.
  • If you want to help a family member pay for education or medical bills, you can withdraw the money and give it to them, but you will owe income tax on the full withdrawal amount.

Why the IRS taxes IRA withdrawals even when you give the money away

An IRA is a tax-deferred account. Money grows inside it without being taxed each year, but the IRS expects to collect tax when you take the money out. The agency does not care what you do with the money after withdrawal — whether you spend it, invest it, or hand it to your child. From the IRS's perspective, you received income, and that income is taxable.

This applies to both traditional IRAs and Roth IRAs, though the mechanics differ slightly. With a traditional IRA, you get a tax deduction when you contribute, so withdrawals are fully taxable. With a Roth IRA, you contributed after-tax dollars, so your contributions come out tax-free, but any earnings you withdraw are taxable if you do not meet the withdrawal rules.

The gift itself does not trigger a separate tax. The person who receives the money does not owe income tax on it, and you do not owe gift tax unless the amount exceeds the annual gift tax exclusion (which is $18,000 per person per year as of 2024, though this changes annually). The tax you owe is on the withdrawal from the IRA, not on the act of giving.

How may have access to charitable distributions work if you are 70½ or older

If you are age 70½ or older, you can instruct your IRA custodian to send up to $100,000 per year directly to a may have access to charity. That money is not counted as taxable income on your tax return, even though you have withdrawn it from the account. This is called a may have access to charitable distribution, and it is the only way to move IRA money without triggering income tax.

The key requirement is that the money must go directly from your IRA custodian to the charity. You cannot withdraw the money yourself and then write a check to the charity — if the money touches your hands, it becomes a taxable distribution. You also cannot use the distribution to satisfy a pledge or get a charitable benefit in return, such as naming rights or event tickets.

The charity must be a may have access to organization under IRS rules — typically a church, school, hospital, or public charity. Private foundations, donor-advised funds, and charitable remainder trusts do not count. Your IRA custodian can tell you whether a specific charity qualifies, or you can search the IRS Tax Exempt Organization Search tool online.

What happens if you withdraw to pay for a family member's education or medical bills

You can withdraw money from your IRA and give it to a family member to pay for their college tuition, medical expenses, or any other purpose. You will owe income tax on the full withdrawal amount in the year you withdraw it. There is no special tax break for educational or medical gifts, even though some retirement accounts offer penalty-free withdrawals for those purposes.

If the person receiving the money is under age 59½, they do not owe a penalty on the withdrawal — only you do, as the account holder. If you are under 59½ when you withdraw, you will owe both income tax and a 10 percent early withdrawal penalty on the amount, unless you may have access to for an exception. The exceptions are narrow and do not include "I want to help a family member."

One option to reduce the tax burden is to withdraw only what you need and spread the withdrawal across two tax years if possible. A smaller withdrawal in each year may push you into a lower tax bracket. You can also explore whether the person receiving the money has other funding sources — student loans, grants, or payment plans — that might be more tax-efficient than an IRA withdrawal.

Early withdrawal penalties and exceptions that explore to gifts

If you are under age 59½ and withdraw from a traditional IRA, you normally owe a 10 percent early withdrawal penalty on top of income tax. However, some exceptions allow you to withdraw without the penalty. These exceptions do not require you to keep the money for yourself — you can withdraw penalty-free and give the money away.

The exceptions include withdrawals for a first-time home purchase (up to $10,000 lifetime), unreimbursed medical expenses, health insurance premiums while unemployed, and disability or medical hardship. If you withdraw under one of these exceptions and then give the money to a family member, you still owe income tax, but you avoid the 10 percent penalty. You do not owe the penalty on the gift itself — only on the withdrawal.

Roth IRAs have different rules. You can withdraw your contributions (the money you put in) at any age without tax or penalty. You can also withdraw earnings penalty-free if you are disabled, a first-time homebuyer, or meet other narrow exceptions. Again, you can give this money away without owing a gift tax, but you will owe income tax on any earnings you withdraw early unless you may have access to for an exception.

The difference between income tax and gift tax

Gift tax and income tax are two separate taxes, and it is important to understand which one applies. Income tax is what you owe when you receive money — in this case, when you withdraw from your IRA. Gift tax is what you owe when you give away money or property of significant value.

In most situations, you do not owe gift tax at all. The annual gift tax exclusion allows you to give up to $18,000 per person per year (as of 2024) without reporting it or owing tax. If you give more than that to one person in a year, you have to file a gift tax return, but you still do not owe tax unless you exceed your lifetime exemption, which is $13.61 million (as of 2024). These numbers change annually.

The person receiving the gift never owes income tax on it. So if you withdraw $50,000 from your IRA and give it to your adult child, you owe income tax on the $50,000 withdrawal, but your child owes nothing. You also do not owe gift tax because $50,000 is below the annual exclusion. The only tax bill is your income tax on the withdrawal.

Strategies to minimize taxes when you need to give IRA money away

If you are 70½ or older and want to support a charity that a family member cares about, a may have access to charitable distribution lets you move IRA money without owing income tax. You could also discuss with family members whether they would benefit from a direct donation to their school or hospital instead of receiving the money personally.

If you are younger and need to withdraw for a family member's benefit, consider whether you may have access to for a penalty-free withdrawal exception. A withdrawal for a first-time homebuyer, medical hardship, or disability avoids the 10 percent penalty, though you still owe income tax. Spreading the withdrawal across two tax years, if possible, may reduce your tax bracket and lower your overall tax bill.

Another approach is to let the family member borrow from you instead of withdrawing from your IRA. If you have other savings, a personal loan to a family member avoids the IRA withdrawal entirely and gives you the option to forgive the loan later using your annual gift tax exclusion. This keeps your IRA growing tax-deferred and delays your tax bill.

Frequently Asked Questions

If I withdraw from my IRA and give the money to my child, does my child owe any taxes?

No. Your child owes no income tax or gift tax on the money. You owe income tax on the withdrawal because you are the one who took the money out of the IRA. Your child straightforward receives a gift, which is not taxable income to them.

Can I withdraw from my IRA to pay my grandchild's college tuition without owing taxes?

You will owe income tax on the withdrawal. There is no special tax break for educational gifts from an IRA, even though some retirement accounts offer penalty-free withdrawals for education. You can withdraw and give the money to your grandchild, but you owe income tax on the full amount you withdraw.

What is the difference between a may have access to charitable distribution and a regular withdrawal?

A may have access to charitable distribution is only available if you are 70½ or older, and the money must go directly from your IRA to a may have access to charity. That distribution is not counted as taxable income. A regular withdrawal is taxable income to you, no matter where the money goes afterward.

If I am under 59½ and withdraw from my IRA to give to a family member, do I owe a penalty?

You owe a 10 percent early withdrawal penalty unless you may have access to for an exception, such as a first-time home purchase, medical hardship, or disability. The exception applies to the withdrawal itself, not to the gift. You still owe income tax on the full amount you withdraw.

Can I avoid taxes by having my IRA custodian send the money directly to my child instead of to me?

No. If your IRA custodian sends the money to your child at your direction, it is still a taxable distribution to you. The only way to avoid income tax is a may have access to charitable distribution to a charity, which requires you to be 70½ or older.