Secure Act Clarification
Hi,
If a Roth IRA owner dies at age 55 and the deceased has as the account registered in the name of her trust with its beneficiary being her 20 year old daughter. How many years does the daughter have to remove the total balance (5 or 10)?
Also, can you list some of the major pros and cons of having your Roth registered to a trust versus just a listed beneficiary and contingent beneficiary? Thank you.
R. Santucci
Permalink Submitted by Alan - IRA critic on Mon, 2024-11-04 18:37
If the trust is not qualified for “look through”, she has just 5 years.
If the trust is qualified and assuming daughter is not disabled or chronically ill but would still be a minor for the first year, the 1o year rule would not kick in until the year after the minor reaches age 21. For example, an RMD based on age 21 would be due in 2025, and because these RMDs started, would have to continue beyond 2025, with the Roth totally distributed to the trust by the end of 2035. Once distributed to the trust, the trust provisions determine if and when those funds would be passed out of the trust to the beneficiary.
If the trust is qualified (and most are), the distribution rate would be the same as if the minor was named directly and inherited through an UTMA until reaching the age of majority. However, the trust could include provisions for accumulation of the Roth distributions in the trust, and that would eliminate access for the child who would otherwise be able to drain the inherited Roth upon reaching majority and spend the money. Accumulating the funds in the trust would prevent that. While the Roth distributions will be tax free, once distributed to the trust, additional gains would be taxable at the higher trust rates. so the trade off is more taxes in exchange for control of the funds. Perhaps the trustee of the trust would have the power to terminate the trust at some point, such as when the beneficiary of the trust reaches 31.