"Unless you're writing a check from your bank account, the logistics of gifting funds can get a bit complicated.If you want to gift from your IRA, your only option is to sell a chunk of it, then pay any taxes due, then write a check. That's not terrible, so long as you understand the tax implications. IRA withdrawals are typically subject to ordinary income tax, along with penalties if you're not yet 59½."
"It will compound tax-free and skirt taxes upon withdrawal for qualified higher-education expenses. Plus you'll typically get a state tax break on a contribution to your home state's plan. UGMA/UTMA (Uniform Gifts/Transfers to Minors Act): This is an open-ended way to save for minor children. There are no strictures on how the money is ultimately used, and the assets can be invested in almost anything. Note that UGMA/UTMA assets may reduce a student's eligibility for financial aid."
Gifting money requires attention to tax consequences and transfer mechanics. IRA distributions used for gifts often require selling assets, paying ordinary income tax, and possibly penalties before gifting. Such withdrawals can also affect income-based adjustments and are not as seamless as qualified charitable distributions or beneficiary designations. For adult recipients, the recipient should open the investment account and receive funds directly. For children, a 529 plan provides tax-free growth for education and potential state tax benefits, UGMA/UTMA offers flexible custodial savings but can affect financial aid, and an IRA is available only if the child has earned income.
Read at Fast Company
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