You cannot put your individual retirement account (IRA) in a trust while you are living. You can, however, name a trust as the beneficiary of your IRA and dictate how the assets are to be handled after your death. This applies to all types of IRAs, including traditional, Roth, SEP, and SIMPLE IRAs.
Should retirement accounts be placed in a trust?
You should put your retirement accounts in a living trust only for personally specific reasons. Since there are no additional tax benefits, only potential tax problems, from using a living trust for retirement accounts, consider your reasons carefully.
What happens when an IRA is left to a trust?
When a trust is named the beneficiary of an IRA, the trust typically receives the IRA proceeds upon the IRA owner’s death. The IRA is then a separate trust asset and should be held as a separate account. We will discuss later whether it is the trust, or the beneficiaries who will pay tax on the IRA proceeds.
Why put an IRA in a trust?
The trustee or another person named in the trustee agreement will manage the IRA investments. That minimizes the beneficiary’s ability to dissipate the IRA’s value through poor investments. The trust also protects the IRA from creditors, bankruptcy, and divorce.
Can I make my trust the beneficiary of my IRA?
However, a trust also can be named as an IRA beneficiary, and in many instances, a trust is a better option than naming an individual. When a trust is named as the beneficiary of an IRA, the trust inherits the IRA when the IRA owner dies. The IRA then is maintained as a separate account that is an asset of the trust.
What is the 5 year rule inherited IRA?
You also have the option of distributing your inherited IRA under the 5-year rule. This allows you to take distributions however you like without penalty, so long as all assets are completely distributed from your inherited IRA by December 31 of the 5th year following the IRA owner’s death.
How long can I keep an inherited IRA?
You can choose to take distributions over your life expectancy, known as the “stretch option,” which leaves the funds in the IRA for as long as possible. Otherwise, you must liquidate the account within five years of the original owner’s death.
