Trusts and IRAs
Client has a 401(k) plan — trust is beneficiary. Two children are beneficiaries of the trust. Client dies.
Attorney wants to divide the 401(k) plan account into two IRAs [b]within [/b]the trust and pay the children out in accordance with the trust. The trust allows the son to take control of the assets at age 30. The daughter’s portion is to remain in trust for her for her lifetime.
I never heard of a trust owning IRAs, but it appears from what I’ve researched that the trust can distribute the funds to the IRA in the beneficiaries names. WOuldn’t this remove the tax-deferred status? I’m not grasping this concept. Am I reading my research incorrectly?
Permalink Submitted by Bruce Steiner on Tue, 2007-09-25 18:56
Probably. A trust can be a beneficiary of an IRA. Assuming all of the requirements are met, the benefits can be taken over the life expectancy of the oldest beneficiary of the trust. See my article “Trusts as Beneficiaries of Retirement Benefits” in the March 2004 issue of the BNA Tax Management Estates, Gifts & Trusts Journal: http://www.bna.com/tm/tmm0903_steiner.rtf