The IRA Trust is a stand-alone trust that would be the beneficiary of an IRA, and will satisfy all of the regulations related to the distribution of IRAs and retirement benefits. This tool provides beneficiaries the ability to take advantage of their inherited benefits over their lifetime, maximizing the return on your investments.
The beneficiaries of the IRA Trust can be the same as those of a traditional Living Trust or Will. The terms of distribution may be different and often are more restrictive in the IRA Trust to ensure that the IRA Trust assets will be available to help support your beneficiaries. The IRA Trust can divide assets between different groups of beneficiaries and can maximize the value of the IRA asset. An IRA Trust also assists beneficiaries in more difficult or complex situations, such as those who are:
- Spendthrifts or unable to handle/manage money
- Children under the age of 18
- Children with addictions
- Children with creditor issues
- Children with bad or difficult marriages
- Children or grandchildren with special needs—even those who qualify for government benefits
In these situations, the IRA Trust can provide professional management of the IRA Trust assets, allowing assets to grow tax deferred, except for required distributions, and ensure that waste of the assets does not occur. You can also place restrictions on how the IRA is spent, limiting when and how much each beneficiary can withdraw.
When individuals are beneficiaries of an IRA Trust, they can immediately cash out the IRA and spend the money as they wish. In those circumstances, the stretch out of the required minimum distribution over the beneficiary’s life expectancy is lost, and 100% of the amount withdrawn will be included in the beneficiary’s taxable income in the year withdrawn. Distributions from a 401(k) plan or traditional IRA are subject to income tax and ordinary income tax rates.
With an IRA Trust, you can prohibit beneficiaries from immediately withdrawing from the IRA or selecting the Five-Year Growth plan. Beneficiaries are restricted to minimum distributions based on life expectancy. However, unlike a traditional IRA, which calculates minimum distributions by using the oldest beneficiary’s age, an IRA Trust can be drafted to create sub-trusts for each beneficiary—thereby maximizing the required minimum distribution based on each beneficiary’s own life expectancy.
Naturally, an IRA Trust isn’t beneficial for everyone. But, for example, individuals aged 30 with $125,000 in their IRA or those 60+ with over $500,000 in an IRA, will far exceed any attorney fees by extending the life of the IRA and decreasing applicable taxes through an IRA Trust. If you would like more information on IRA Trusts, please feel free to contact me so I can further explain how this tool may benefit you and your family.