Transfering Trust Owned IRA money to Individual Owned IRA

Submitted by Clifton Yasutomi on Sat, 2018-09-15 00:47

I understand it’s not typically advisable for a trust to be the beneficiary and eventual owner of an IRA.

Question1: If someone already has a trust owned IRA, can they transfer the money to their own traditional IRA through a trustee-to-trustee transfer?

Question 2: Will this trigger a taxable event?

Question 3: How will RMDs be calculated after the transfer?

Question 4: Other unintended consequences?

Thank you!

Permalink Submitted by Alan - IRA critic on Sat, 2018-09-15 01:18

In many cases, a trust beneficiary is highly advisable, in other cases it is not. Too complex to generalize since all relevant facts should be considered.
Q 1 – a trust can only be a beneficiary or beneficial owner, not an owner in the same sense as the original IRA owner. Once the owner passes, if the trust allows the trustee to terminate the trust at some point, the inherited IRA can be assigned to an inherited IRA of the trust beneficiary.
Q 2 – No. Only distributions from the IRA are taxable events. Assignment from the trust to the trust beneficiaries is not. This must be done by a direct trustee (IRA custodian) transfer.
Q 3 – After such a transfer, the RMDs will remain the same as they were when the trust inherited the IRA. Further, the separate account rules (life expectancy for each beneficiary) do not apply to trusts.
Q 4 – the trust should be qualified for look through treatment in order to have the longest possible RMD schedule. If the trust does not qualify for look through, it is treated as if it were an estate and RMDs will then be based on either the 5 year rule or the remaining life expectancy of the decedent. If there is a charitable beneficiary in the trust, that charity needs to be cashed out no later than 9/30 of the year following the year of the IRA owner’s death.