Ask Terry Questions IRA’s to a Trust account beneficiary

IRA’s to a Trust account beneficiary

By Terry Savage on September 04, 2018 | Financial Planning / Retirement

I saw the tail-end of your segment on the WGN-TV 9AM news. Heard you say not to put an IRA into a revocable trust “because it would all be considered a taxable distribution”? Is this true for Roth IRA’s as well a regular IRA’s?

Terry Says

No, it doesn’t apply to a Roth IRA — but it would be considered a “distribution.” And the money could no longer keep growing tax-free! You don’t want to name a trust as the beneficiary for this reason. If an individual is a beneficiary, he or she could maintain the tax-deferred (or tax-free growth in a Roth_ over his or her lifetime, subject to some withdrawal requirements for non-spousal beneficiaries. The whole idea is to STRETCH out the tax-deferred growth — and a trust can’t do that!

Specifically, here are the rules on distribution of a Roth IRA to a beneficiary. This comes from the IRS:

Generally, the entire interest in a Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner’s death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary.

If paid as an annuity, the entire interest must be payable over a period not greater than the designated beneficiary’s life expectancy and distributions must begin before the end of the calendar year following the year of death.

Recent Financial Planning / Retirement Questions



a personal
finance question