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Should you use retirement accounts to fund gifts?


SKU: ESTnd223. Category: .


Abstract: Generally, a significant portion of a person’s wealth can be found in IRAs and other tax-deferred retirement accounts. Traditionally, these accounts have been viewed as off limits when it comes to funding lifetime gifts, given the negative income tax implications. But things are a little different now. Why? Because the federal gift and estate tax exemption is scheduled to be cut roughly in half at the end of 2025. Faced with the prospect of a higher estate tax bill, many affluent people are establishing irrevocable trusts or implementing other gifting strategies to lock in the higher exemption amount before it disappears. This article explains why, in some cases, it may make sense to use retirement accounts to fund these gifts, provided the estate tax benefits would outweigh the income tax costs.

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