We want to give a gift of cash out of my husband's 401(k). I read that a new 2018 law allows you to gift up to $30,000 and not have to report it or file a report with the IRS. But will we get taxed on the money?
I am not aware of, nor can I find any documentation that supports, a new tax law that allows a cash gift up to $30,000 out of a 401(k) without reporting it to the IRS. With that being said, the IRS is currently working on interpretation of the new tax law, and we expect guidance to be coming out during the summer of 2018.
There are three ways to distribute from a 401(k) plan:
- You die, become disabled, or otherwise have a severance from employment.
- The plan terminates and no successor-defined contribution plan is established or maintained by the employer.
- You reach age 59½ or incur a financial hardship.
In these cases, when the money comes out of the 401(k) plan it is taxable as ordinary income. If the money is removed from the 401(k) outside these parameters, in addition to the tax due there is also a 10 percent penalty that is assessed.
Unless the IRS interpretation of the new tax law changes these parameters, any amount taken out of the 401(k) is reportable to the IRS. The age of the account owner will determine the amount of tax that must be paid.
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Answered by: Lesley F. Katz, CPA, is the founder of Leveraging Financial Knowledge LLC in Lower Gwynedd, Pa.