Inherited IRA by Trust Account
Please help! I’m having a terrible time interpreting the rules for required distributions when a trust inherits an IRA. What is the RMD & distribution rules for this situation?
Here’s the situation:
Client set up trust for son – son is neither disabled nor chronically ill. Trust inherited IRA funds from Grandma.
Trust: irrevocable, has it’s own EIN, has the right to continue to hold assets as an investment and does not require funds to be distributed immediately (accumulation trust), mom and dad are trustees.
All other IRA beneficiaries are individuals with no trust.
IRA owner died in 2023 and was older than RBD.
Permalink Submitted by Alan - IRA critic on Mon, 2024-11-18 18:57
If the trust is qualified for look through, the IRA is subject to the 10 year rule and must be drained by the end of 2033. Of course, the trust can accumulate this income or pass it through to the son, but if accumulated it will be taxed at the higher trust rates. Annual beneficiary RMDs must be made to the trust starting in 2025 based on the age of the oldest “countable” beneficiary of the trust. That could be someone other than the son.
Most trusts are qualified, but in the event it is not, the 10 year rule does not apply and the IRA must be drained using the remaining single life expectancy of the client. That could be more or could be less than 10 years, and the first RMD year would be 2024.
Further, if the client did not complete the 2023 RMD before passing, that RMD must be distributed to the trust before the end of this year.
Even if the trustee of the trust has the discretion to terminate the trust and assign the IRA to the son, that will not change the RMD rules stated above.