Will I be able to give a gift of cash from a 401(k) without having to report it to the IRS?

Will I be able to give a gift of cash from a 401(k) without having to report it to the IRS?

by Lesley F. Katz, CPA | Mar 09, 2018

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.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Lesley F. Katz, CPA, is the founder of Leveraging Financial Knowledge LLC in Lower Gwynedd, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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