Ask Me Help Desk - Cash Gifts to family advised prior to death estate?

I wish to pass on a cash gifts to my newborn grandaughter. I understand I may be able to do this up to no more $12,000 in one year w/out tax penalty to my son. Question is , if I withdraw from a retirement IRA will I get taxed on the amount withdrawn at years end. I am 60 years old and not working due to a disibility ( have filed for SSD) I have been advised that I can withdraw from my IRA's since I am now behond age 59 1/2 . Currently my husband and myself will be in the 15% tax bracket based on combined year income, which I understand stays at 15% up to $65,000 combined income for the year ? Would I get taxed on my IRA withdrawal at 15% ?
I am also concerned about a penalty if I were to apply for a Medicaid NH benefit within following 5 years after this gift is given it would make me ineligible for NH assistance under Florida State law?
Any information anyone has out there would be helpful. Thanks.

I will just try to provide a little bit of info on the Medicaid part of your question and I am not an expert by any means. I believe the 5 year lookback (as they call it) is a Medicaid regulation and would apply in all states.
Also, the fact that you gave away some assets wouldn't totally disqualify you for benefits.
The way it was explained to me, if you gave away $ 20,000 in assets, and the cost per day for NH was $ 200 per day, they would divide 20,000 by 200 and you would have to pay for the first 100 days in the NH before they would assist (also, your assets you kept would have to be down to a certain level, maybe $ 2000 or so). Certain assets like pre-paid funeral, for instance, they can't count. The Medicaid websites provide a lot of info too.

Regarding the tax questions - you can indeed gift up to $12K to an individual without tax implications, but if you gift more than that the onus would be on you (not your son or grand daughter) to determine what the possible effect of having to pay gift taxes would be. By keeping the gift to $12K or less you don't have to worry about any of that.

When you withdraw from your IRA you will owe ordinary income tax on the withdrawal. The tax rate will depend on your particular situation - this income is added to your husband's plus any other taxable income, minus deductions, to determine your particular tax rate. It s possible that this additional income could push you into a higher tax bracket - it's impossible to say without more information. Be aware that the plan administrator should withhold 20% from your distributions for income tax - if you are actually in the15% bracket this means that you should be due a refund come next April. Also, keep in mind that if you live in a state with income tax you will owe that as well.

Quote:

Originally Posted by smearcase

I will just try to provide a little bit of info on the Medicaid part of your question and I am not an expert by any means. i believe the 5 year lookback (as they call it) is a Medicaid regulation and would apply in all states.
Also, the fact that you gave away some assets wouldnt totally disqualify you for benefits.
The way it was explained to me, if you gave away $ 20,000 in assets, and the cost per day for NH was $ 200 per day, they would divide 20,000 by 200 and you would have to pay for the first 100 days in the NH before they would assist (also, your assets you kept would have to be down to a certain level, maybe $ 2000 or so). Certain assets like pre-paid funeral, for instance, they can't count. The Medicaid websites provide a lot of info too.

Thanks for your help.ou pretty much confirmed what I had heard, so long as at some point you may be eligible after you pay you fare share up front. I pray that I wll never nead it.

Quote:

Originally Posted by ebaines

Regarding the tax questions - you can indeed gift up to $12K to an individual without tax implications, but if you gift more than that the onus would be on you (not your son or grand daughter) to determine what the possible effect of having to pay gift taxes would be. By keeping the gift to $12K or less you don't have to worry about any of that.

When you withdraw from your IRA you will owe ordinary income tax on the withdrawal. The tax rate will depend on your particular situation - this income is added to your husband's plus any other taxable income, minus deductions, to determine your particular tax rate. It s possible that this additional income could push you into a higher tax bracket - it's impossible to say without more information. Be aware that the plan administrator should withhold 20% from your distributions for income tax - if you are actually in the15% bracket this means that you should be due a refund come next April. Also, keep in mind that if you live in a state with income tax you will owe that as well.

Thanks for thr help, as I suspected I would have to pay tax on whatverfunds I withdraw as the gift $ 12,000 if that be non taxable to the receiver, I believe my yax bracket will stay at 15% as long as my spouse and I do not exceed I think $65,000 in earnings which we do not. So I will talk to my financial council about how we can best draw up the gift.