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My stepmother inherited my dad’s IRA but she wants to give it away to her grandchild — is that allowed? – MarketWatch

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Hi, my question is what would be the best option for my stepmother who either jointly owned or inherited an IRA from my dad who is now deceased. She will be turning 70 this year and has received a letter that she must start drawing the RMD soon or face penalties. She wants to gift the IRA to one of the children but she is worried about the tax issues. Is there a way that she could gift it without her incurring any tax liabilities?

—RS

A.: RS, she probably inherited it as his named beneficiary. She could not have owned the IRA jointly because joint ownership of an IRA is not permitted.

Assuming she rolled his IRA into her own, something only a spouse can do, she will need to plan for taking a required minimum distribution (RMD). You said she would turn 70 this year. If her birthday is late in the year, she turns 70½ in 2020 and no RMD is required for 2019. The receipt of the letter suggests her birthday is in the first part of the year, making her 70½ in 2019.

If that is correct, the minimum amount is calculated by dividing the Dec. 31, 2018 balance by 27.4 or 3.65%. Each year, the factor will increase according to this table. She can take it anytime this year, all at once or in as many installments as she likes.

Many find having to pay taxes on RMDs annoying but the actual RMD amount is often modest early in retirement. For instance, she won’t have to take more than 5% for almost a decade and the RMD will be under 10% until her early 90s. Nonetheless, she should make sure she takes them in a timely manner. Failure to do so results in a penalty of 50% of the shortfall.

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If she turns 70½ in 2019, her first RMD can be delayed as late as April 1, 2020 but all of her future RMDs will need to be completed by Dec. 31 of each year based on the Dec. 31 balance of the prior year. Therefore, if she does delay the first RMD she will actually take two RMDs in 2020, the delayed 2019 RMD and the 2020 RMD due by Dec. 31, 2020. The taxable income for both will need to be reported on her 2020 tax return. Many prefer to take the first RMD in the year it is first required to avoid this doubling up and possibly increasing the tax rate.

She cannot give IRA money directly to anyone other than a qualified charity. A donation to a qualified charity made directly from her IRA can count toward her RMD and will not be counted as taxable income. To give IRA money to any party other than a qualified charity, she must first pull the money from the IRA and report the income that results.

If you have a question for Dan, please email him with “MarketWatch Q&A” on the subject line.

Dan Moisand’s comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.