Q: Dan, I inherited a $25,000 IRA from my uncle, single and with no children, who died last year at 79. While I am touched that he thought of me, I have enough money to be comfortable. If I give the IRA to my son, will he pay the taxes on the IRA? — Pete in Cocoa Beach
A: Pete, I’m sorry for your loss. That was very nice of your uncle.
No type of IRA or retirement account can be gifted to anyone. You can either take the money out of your uncle’s IRA now, accept your uncle’s IRA as an Inherited IRA for yourself, or you can disclaim it. If you disclaim it, the determination of who gets the account is not yours to make. The IRA passes as though you were deceased at the time your uncle died.
Disclaiming means it will go to whomever your uncle named in the beneficiary documentation. If there is no one else named in that beneficiary designation, the account goes to his estate, and the probate process of your uncle’s state determines where the IRA goes.
To get that money to your son, you would have to take the money out of your uncle’s IRA now, or from your Inherited IRA. Either way, you pay the taxes on that distribution. You can ballpark what that tax bill could be by estimating your 2026 taxes and adding $25,000 to the taxable income. If that pushes you into a higher tax bracket or triggers other costs, you may want to take the funds out over more than one tax year. If that is the case, you will want to take the funds into an Inherited IRA.
The RBD and RMD: Know what they are, how you’re affected
As a non-spouse beneficiary, you must empty the Inherited IRA and pay the requisite taxes by the end of 2035. Further, because your uncle was past his Required Beginning Date, he had been subject to Required Minimum Distributions (RMD) so your Inherited IRA will also be subject to RMD. Each year, you can take as much as you want from the account as long as it is at least as much as the RMD for that year. Those RMD are based on the balance at each year end and an IRS factor based on your age.
You may decide to give your son $25,000 from a different account with less income tax impact on you. Regardless of what type of account the gift comes from, you should be aware of gift taxes.
You may give anyone to whom you are not married an annual exclusion amount each year without gift tax. (There is no limit on gifts to spouses.) Inflation adjustments cause the annual exclusion amount to go up periodically. In 2026, the exclusion is $19,000.
Because the exclusion is per recipient per year, you can avoid gift tax implications by giving him up to $19,000 in 2026 and the rest in 2027. The 2027 exclusion should be at least $19,000. If he is married, you can get him $25,000 gift tax-free in 2026 by giving him $19,000 or less and the rest to his spouse. Or, if you are married, you and your spouse can each give him up to $19,000 in 2026.
In fact, if both you and your son have spouses, the potential exists to transfer up to $76,000 in 2026, free of gift tax via four transfers of $19,000. You would give $19,000 to your son and $19,000 to his spouse. Your spouse would do the same.
Further, if you were to exceed the annual exclusion amount, there still may be no gift taxes to pay. Each individual gets an exclusion from estate and gift taxes that can be used over their lifetime. If you and your son are both single and you exceed the $19,000 limit, you could use your lifetime exemption to offset the taxes on the $6,000 overage. Since the exclusion currently sits at $15 million ($30 million per married couple with proper planning), that means you would still have $14,994,000 of exclusion left to use for taxable gifts or to leave to your heirs free of transfer taxes.
As a result of these exemptions, with proper planning and the requisite paperwork, most Americans should not pay federal gift or estate taxes and can focus on managing their income tax.
Dan Moisand, CFP has been featured as one of America’s top independent fee-only financial planners by at least 10 financial planning publications and practices at one of America’s most decorated independent firms. For more info, e-mail him dan@moisandfitzgerald.com, visit moisandfitzgerald.com or call Dan at 321-253-5400, ext. 101.
This article originally appeared on Florida Today: You’ve inherited an IRA. What comes next and what can you do with it?
Reporting by Dan Moisand, For FLORIDA TODAY / Florida Today
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