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My mom cashed in $75,000 from an IRA and she is 80+ years old.

Customer Question
She wanted to give the...
My mom cashed in $75,000 from an IRA and she is 80+ years old. She wanted to give the money to her children and grandchildren, in part for college tuition. Does any of this either come off her gross income or is it a deduction. She is trying to reduce her tax liability for the withdrawal. Thanks in advance
Bruce
Submitted: 6 years ago.Category: Tax
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6/2/2011
Tax Professional: Lev, Tax Advisor replied 6 years ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,165
Experience: Taxes, Immigration, Labor Relations
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LEV :

Hi Bruce and welcome to Just Answer!
Several issues...
1. The distribution from IRA account will be included into your mother's taxable income.
2. Your mother may use her money as she want including gifting to her children and grandchildren.
3. If she gift more than $13,000 to any person during the year - she will be required to file a gift tax return. However - there will not be any gift tax liability as long as the lifetime limit of $5,000,000 is not reached.
4. If your mother pays for college tuition directly to the college - that amount is not included into $13,000 limit and doesn't need to be reported on the gift tax return.
5. The IRS specifically directed that the gift to any specific person may not be deducted on the tax return. Only gifts to charitable organizations are deductible. So your mother will not reduce her tax liability by gifting to her children and grandchildren.
6. Please be aware that because of additional income from the IRS withdrawal - your mother's social security benefits might become partly taxable.


Please let me know if you need any help or clarification.

Customer:

One more, similar question, if I cash out a pension fund upon leaving a job, is there any way to exclude or deduct it from gross income other than the usual deductions? Gifts, I assume, will have no effect. What if the money is used for medical costs? Thanks again.

LEV :

Distributions from retirement plan are taxable as long as contributions were not included into taxable income at the time these contributions were made.
Only if you made nondeductible contributions - that amount is distributed tax free.
In most situations contributions into retirement funds are excluded from taxable income - by doing that - we defer tax liability till the time funds are distributed.
That is why for tax purposes we should avoid large taxable distribution in any single year.
You may deduct medical expenses regardless of where the money to pay these expenses are coming.
Medical expenses are deducted (1) if you itemize (2) if your medical expenses are above 7.5% of your adjusted gross income (AGI).

Lev
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