Be very careful when naming a trust as the beneficiary of your IRA, because unexpected tax consequences may result from your decision.
A Trust is one way to help you achieve your goals for the allocation of your IRA. However the trust must meet certain IRS rules and regulations so careful planning is essential.
If you name your spouse as the beneficiary, the spouse may roll the IRA into his/her IRA account or roll it into a newly established IRA. The payout will then be calculated based on life expectancy of your spouse. Or if your children are named as the beneficiaries, provisions exist to “stretch” the payments over life expectancy as well.
However, a trust is not a “person” in the eyes of the IRS. Therefore, no life expectancy can be calculated and the payout period may only be five years. In some cases a lump sum distribution is required resulting in immediate taxation and termination of the IRA. A five year payout could result in a higher overall tax rate for the beneficiary. In both cases the result is a lower amount that is invested for tax free accumulation.
Please call us if you have any questions.
772-287-8964
A Trust is one way to help you achieve your goals for the allocation of your IRA. However the trust must meet certain IRS rules and regulations so careful planning is essential.
If you name your spouse as the beneficiary, the spouse may roll the IRA into his/her IRA account or roll it into a newly established IRA. The payout will then be calculated based on life expectancy of your spouse. Or if your children are named as the beneficiaries, provisions exist to “stretch” the payments over life expectancy as well.
However, a trust is not a “person” in the eyes of the IRS. Therefore, no life expectancy can be calculated and the payout period may only be five years. In some cases a lump sum distribution is required resulting in immediate taxation and termination of the IRA. A five year payout could result in a higher overall tax rate for the beneficiary. In both cases the result is a lower amount that is invested for tax free accumulation.
Please call us if you have any questions.
772-287-8964
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