Q: My sister has cashed out her 401(k) and wants to give it to me as a gift. How will this affect us tax-wise? The amount is about $14,000. —Beverly, Benton, Ark. A: Lucky for you, there will be no tax ramifications to you for accepting the gift. But your sister will have to square up with the IRS. Because your sister cashed out her 401(k), she will owe income taxes on the total amount withdrawn, says St. Petersburg, Fla. financial planner Helen Huntley. If she was younger than 59½ when she pulled the money out, she will also be hit with an additional 10% early withdrawal penalty. Keep in mind that while your sister probably won’t owe gift tax—$5.34 million in property can be transferred tax-free over one’s lifetime—she may need to inform the IRS. Each year, you’re allowed to give up to the annual gift tax exclusion limit (this year $14,000 per person, though a married couple can double that) without reporting the transfer of funds to the IRS. Above that, the gift giver will need to file a form 709, and the gift will be subtracted from their total lifetime gift and estate tax exclusion.