When you give away your Roth IRA through a living trust, your beneficiaries receive the Roth assets tax-free. You can also expand your IRA this way. When a traditional IRA is paid out in retirement, minimum distributions (RMDs) are required. It may be a good idea to invest your Roth assets in a trust after you die, as long as you’ve chosen the right type of trust and your beneficiaries are specifically named in the trust
.
Each year, a conduit trust makes the minimum distributions (RMDs) required by the beneficiary. In a conduit trust, the natural or legal person named as the trustee beneficiary is treated as a direct beneficiary of the Roth IRA. It is possible to put an IRA into a trust. To do this, set up a trust and name it as the beneficiary of your IRA
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This is ideal in certain circumstances, such as when you want more control or privacy. However, distributions from an inherited IRA must be made within five years, and the situation could result in a tax bill for your heirs. One way to avoid this is to transfer your IRA to a charitable balance fund. Jackie intended to request a distribution of the entire Roth IRA balance to her as the sole beneficiary of the trust and to transfer the amount to a Roth IRA on her
behalf.
If you don’t have a will, state laws determine the beneficiary (usually the next of kin) of your Roth IRA. The costs, the time it takes to apply for the PLR, and any anxiety that arose while waiting for the IRS to decide, as well as the additional paperwork that the tax preparer must complete, could have been avoided if Jackie had been named the Roth IRA beneficiary. One option is to have your IRA distributed to a charitable balance fund — which wouldn’t be a taxable event. Under the life expectancy rule, distributions would be covered by the life expectancy of the eligible named beneficiary, starting December 31 of the year following the year in which the owner of the Roth
IRA dies.
Distributions of inherited Roth IRAs are not eligible for an extension unless the distributor is the surviving spouse of the IRA owner. Designating a trust as the beneficiary of the Roth IRA would have robbed Jackie of this opportunity if she had not been able to apply for a PLR and obtain an affirmative decision. Given these and other benefits for account holders themselves, it’s no wonder that Roth IRAs have become one of the most popular ways to save for retirement. Roth contributions are paid with after-tax funds, and any distributions you make are tax-free as long as you’re at least 59½ years old and have had a Roth IRA account for at least five years
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It’s also helpful if you’ve left your employer for a new job at another company and want to transfer your 401 (k) savings to an IRA. However, based on the IRA owner’s objectives, it should be carefully considered whether a trust should be the beneficiary of an IRA. The owner of the Roth IRA, let’s call him John, set up a trust and appointed himself and his wife, let’s call her Jackie, as trustees.
