It’s not a good idea to name a trust as the beneficiary of your IRA, as the IRA will lose the benefit of tax-linked growth. This is because the IRA must be distributed more quickly and then taxed differently than in other situations. The same is true when a business entity or estate is a beneficiary. You can’t trust your individual retirement account (IRA) to a trust fund as long as you
live.
However, you can name a trust as the beneficiary of your IRA and prescribe how the assets should be handled after you die. This applies to all types of IRAs, including traditional IRAs, Roth, SEP, and simple IRAs. If you want to set up a trust and include your IRA assets as part of your estate plan, it’s important to consider the characteristics of an IRA and the tax consequences of certain transactions. Retirement accounts definitely don’t belong in your revocable escrow account — for example, your IRA, Roth IRA, 401K, 403b, 457, and the like
. If you
put any of these assets in your trust fund, you would take them out on your behalf to rename them on behalf of your trust. The tax consequences can be disastrous. As a rule, if an IRA beneficiary is not an individual, the IRA must be paid out in full within five years. When a trust, estate, or business entity is named as a beneficiary, the IRA must be distributed and taxed quickly
.
When you add your IRA or 401 (k) plan to your living trusts, you’ll need to rename your plan to your trust’s name. That can raise some serious tax issues. Work closely with an estate planner, lawyer, and accountant, who are all familiar with trusts and IRAs, to make the most of your inheritance. In any case, the surviving spouse was virtually the only person for whose benefit the IRA was maintained and earmarked
.
Key factors to consider include how and over what period of time beneficiaries acquire IRA assets. One spouse, I say it was the husband, owned an IRA and had started with the required minimum distributions (RMDs). In previous rulings, the IRS allowed a similar outcome when an IRA was paid on an estate and the surviving spouse was the sole primary beneficiary of the estate. Traditional IRAs are financed with pre-tax dollars, and any growth of a traditional IRA is
tax-deferred.
In this way, she can take a distribution from the inherited IRA and transfer it to an IRA in her own name without having to state the distribution in gross income, provided that the transfer is made within 60 days of the payout. That means that all money in a traditional IRA must be withdrawn within five years of the IRA account holder’s death. Make sure that only individuals (and possibly charities) are named as beneficiaries of your IRA and that the named people are the ones you currently want to inherit the IRA. That’s probably because the IRA custodian was unwilling to transfer the inherited IRA to another IRA than one with exactly the
same legal title.
While trusts can streamline most areas of estate planning, they can result in more paperwork and even additional tax burdens for beneficiaries of an inherited IRA. This would give her a fresh start and allow her to manage the IRA without having to fall back on her deceased husband’s IRA. She planned to have the IRA balance paid out directly to her and she would transfer it to an IRA in her own name within 60 days. Second, IRAs offered those who were insured a place where retirement savings assets could continue to grow if and if the account holder changed jobs as part of an IRA rollover
..
