At 59 1/2, you can give money from a traditional IRA to anyone you want. When you reach that age, there's no tax penalty on withdrawals. Any younger and you pay a 10 percent penalty when you take out money. Tax law does allow for exemptions for special cases. If you make a gift that falls into one of those categories, you're penalty free. You still pay regular income tax on the withdrawal, though.
You don't pay a penalty if you take an early withdrawal to build, buy or rebuild a house. The IRS gives you the same exemption if you take out the money to help family members with a house. You can withdraw up to $10,000 -- that's a lifetime limit -- to give to your children, stepchildren, grandchildren, parents or spouse's parents. To qualify, the recipients must not have owned a house in the past two years.
If your children or grandchildren are heading off to college or vocational school, you can tap your IRA penalty-free to pay their expenses. Qualified expenses include tuition, books, fees and equipment. If the student attends at least half-time, you can throw in room and board as well. You don't have to pay the college directly: you can write the school a check, then reimburse yourself from your IRA.
Medical bills for you and your family are another IRS exemption. If you support someone as a dependent, you can use this rule for a cash gift that helps pay their medical bills. To qualify as of 2013, your family's total medical bills must be greater than 10 percent of your adjusted gross income. When you're calculating this total, only tax-deductible medical expenses count. Prescription drugs are acceptable to include, for instance, but over-the-counter medicine isn't.
If your IRA is a Roth, you have more flexibility in giving the money away. There's never a penalty or any income tax when you withdraw your original contributions from a Roth, regardless of the reason. If you withdraw earnings on your money as part of your gift, however, you pay income taxes and the 10 percent penalty on that portion of the gift, unless you're covered by one of the withdrawal exemptions already mentioned.
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