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If I give my Roth IRA to my wife, do either one of us pay taxes on it?
There are a couple of issues here. Possible taxes are income taxes or gift taxes.
You cannot transfer a Roth IRA to another person during your lifetime, so a gift to your wife is not possible. You can, however, name her as the beneficiary of the Roth IRA, and she would have free access to it once you pass away. If you want to make an immediate gift to your wife, you can take money out of your Roth IRA and do so, but you would lose all of the future tax free benefits of a Roth. There is no gift tax imposed on gifts to your spouse if she is a United States citizen.
There is no income tax on amounts withdrawn from a Roth IRA once you have had a Roth IRA for five years. If you have more than one Roth IRA, the five-year period begins when you open the first one and all subsequent Roth IRAs use the same five-year period as that first one. So if you have had your Roth IRA for five years, anything you take out of it is income tax free. If your wife inherits the IRA when you pass away (after you've held it for five years) all of her withdrawals would be income tax free as well.
If you open a Roth IRA in 2013 and pass away in 2016, for example, your wife could withdraw your initial contribution tax free but would be taxed on the growth of the Roth IRA if she took additional amounts out before 2018 (five years later).
There are no required distributions during your lifetime from a Roth IRA and also none are required for a spouse beneficiary. Once both of you are gone, any nonspouse beneficiary must begin required distributions (tax free if the five-year period has passed) beginning in the year after the second death.
Mary Kay Foss, CPA, is a director at Sweeney Kovar, LLP, in Danville. You can reach her at (925) 648-3660(925) 648-3660.
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