Legal Question in Tax Law in Illinois

Re: Taxation on selling IRA and giving money to children

No. The tax-free gift to your children (and to anyone, for that matter) is a gift of $10,000 (or $20,000 with your spouse's consent) which can pass free of a different kind of tax, estate tax.

IRAs are subject to income tax.

If you have other money, it's better to use that instead. If you can (please!) die with this IRA money, your kids can probably take it out a long slow rate (and by then it will be worth much more) and pay the income tax also a little at a time, at their personal tax rate (not yours) on those future dated. On top of the income tax problem, you have a withdrawal penalty for taking the money out before age 59.5 (I think, unless you're disabled or using it for certain approved purposes) that makes the money available even less.

I'm not very sure of everything I told you so I suggest that you consult a tax attorney or an accountant that you're comfortable with or else a financial planner, but I think you should take enough of my word to know that you ought to consult further before taking action.

Re: Taxation on selling IRA and giving money to children

You're right when you say there is a tax when you cash in an IRA and your IRA will be taxed at your tax rate plus a 10% penalty, however, you children will not pay taxes on your gift to them.