Tax rate for IRA distribution to a simple irrevocable trust
Can a IRA distribution to a simple (or complex) irrevocable trust be taxed at the beneficiary’s tax rate if no distribution is made to him or is it taxed at the trust rate?
Can a IRA distribution to a simple (or complex) irrevocable trust be taxed at the beneficiary’s tax rate if no distribution is made to him or is it taxed at the trust rate?
Permalink Submitted by mk foss on Mon, 2011-01-10 18:30
A simple trust requires that all income be distributed to the beneficiary. The beneficiary is taxed on the income. Given that, the IRA should be distributed or it’s not a simple trust.
A complex trust either distributes principal as well as income or is not required to distribute all of the income each year. A complex trust can make payments within the first 65 days of the next year and have them taxed as if distributed in the prior year. Example: RMD is $10,000 received 12/10/10 and it’s the only trust income. A distribution of $10,000 ia made 2/28/11 to the beneficiary. If the trustee makes the election, the $10,000 payment is treated as if it were made 12/31/10 and carries out 2010 income.