403B in my Trust? (A Terry “rant” about your “advisors”!)
Hi! We have listened to you for years and appreciate all the financial tips you offer. My husband and I are having a Trust written up next week. The attorney feels we should put our 403B’s in our Trust, our accountant said we shouldn’t because it can be a real tax headache for survivors. I guess we need a tie breaker. Thanks! Mary
Terry Says
Happy to break that tie — decisively. First, of all, you don’t “put” your 403(b) retirement account anywhere! You just name a beneficiary (or several joint beneficiaries) or a successor if the first named beneficiary dies before you do. Likely, you will each make your spouse the primary beneficiary of your own plan. Make sure the records management company for your 403(b) has your written designation of a beneficiary for each of your separate accounts.
You almost NEVER want to name a revocable living trust as the beneficiary of a retirement plan. If you name a person, or persons, as beneficiary, they get to STRETCH out the tax-deferred growth of the plan. But a trust beneficiary will be deemed to have received the money immediately and taxes will be due.
Until this year, the named beneficiary could keep the inherited account growing tax-deferred a LONG time. Then the rules changed and they have a shorter time to withdraw ALL the money– 10 years from the year of your death. Still a lot of growth can happen in 10 years, as you can see from the past 10 years.
Be sure to give instructions to the beneficiaries to do a direct ROLLOVER of your inherited plan to an Inherited IRA. A place like Fidelity or Vanguard will handle it for them at the appropriate time.
Now, here’s what I’m concerned about — and I hope you’ll pass this on to your two professional”advisers”.
First, any estate planning attorney should know what I have just described! It is more than ignorance; it could be malpractice to give this advice to make the trust the beneficiary!
And your accountant should know that it’s not the “hassle” of taxes for the beneficiary. Whenever he or she gets it, there will be ordinary income taxes on the money withdrawn on an inherited IRA at the recipient’s tax rate. The tax consideration is secondary to the ability to keep the account growing tax-deferred for the beneficiaries!
Each should apologize to you for their misinformation.
