Roth is my continuity plan…
My IRAs and 401K’s have been properly converted to Roths over several years (some before and some after my retirement) with the last conversion in 2019. My wife has similarly converted her Traditional IRAs and a 403B to a Roth with her last conversions also completed in 2019. Before the “secure act” we had structured beneficiaries for these Roths to include of two adult children and 3 grandchildren that are now ages 7, 8 and 10 with plans that these Roth accounts would be divided among these beneficiaries. We do not expect to need these funds and would like the beneficiaries to continue investing without distributions for as long as possible should one or both of us pass (without distributions until the grandchildren would have reached age 21). I was provided “specific language” to use for naming beneficiaries but need to consider whether a Trust might be a better tool to achieve our objectives. The adult children will be the Guardians for their children, but how and where does this need to be stated? Rather than using a family trust, we both have named our two adult children and three minor grandchildren as direct beneficiaries for our several Roth accounts using a Beneficiary Designation Letter. Before the secure act began changing the rules we were told that these “named beneficiaries” would be allowed to let these inheritances grow in retitled “Inherited Roth accounts” (with their mothers as their Guardians) without requiring distributions for 10 years. In these Beneficiary Designation Letters each primary beneficiary is named and then contingent beneficiaries named for each of the 5 primary beneficiaries are (not adding any new beneficiaries). Full legal names, dates of birth, SS#’s and relationships are shown for each beneficiary with contingent grandchildren beneficiaries naming their siblings and then mothers of the grandchildren while the adult children naming their children and then, their mother. Before approaching our attorney, we wanted to get thoughts from the Stott experts through this forum to get us “up to speed” with the best way (short of our living forever) to address the inheritance of Roths involving children and grandchildren. Thanks!
Permalink Submitted by Alan - IRA critic on Mon, 2025-01-06 21:55
The Roth can only be preserved for 10 years after the last spouse passes, thanks to the Secure Act. But if you name a trust as beneficiary, the funds distributed from the Roth to the trust can be retained in the trust if that is what you want, and before the 10 years expires, the trustee of the trust can be forbidden from taking any distributions from the Roth IRA. But it would be more reasonable to give the trustee of the trust some discretion regarding distributions from the Roth or the trust should certain needs of the beneficiaries become a concern. Rigid requirements may not work well for the beneficiaries unless they have plenty of other funds to address their needs and emergencies.
Of course, a trust might provide other advantages such as creditor protection and spendthrift protection should your children have such exposures, and that could last well beyond the existence of the inherited Roth accounts.
Without your provisions now included in this letter, I doubt that you can achieve this degree of control without naming a trust containing all these provisions as the Roth beneficiary. Few IRA custodians will accept a more detailed beneficiary designation than the names of primary and contingent beneficiaries for each primary beneficiary, and I would be concerned if an IRA custodian would show “per letter on file” as the beneficiary designation.
I am not an estate attorney, so you should run these detailed plans by a qualified estate attorney.