Trust as Beneficiary of an IRA
It is my understanding that if a Trust is named as beneficiary of a Traditional IRA, then the Trustee has until October 31 of the year following the IRA owners death to notify the custodian of the IRA, in order for the beneficiary to be eligible for the 10 year stretch. Is that correct? If so, what options are available to the beneficiary should this happen?
Permalink Submitted by Alan - IRA critic on Thu, 2020-11-05 21:17
For beneficiaries, having the trust qualified for look through in the past meant a life expectancy stretch. Now, under the Secure Act most will be subject to the 10 year rule, although if the beneficiary is disabled or not more than 10 years younger than the decedent they are an eligible designated beneficiary for the stretch. Interesting enough, if the trustee of the trust intentionally or by mistake does not meet the 10/31 deadline the trust is not qualified and will be treated as a non individual beneficiary. That would trigger the 5 year rule for deaths prior to the RBD, but for deaths in the few years after the RBD, the remaining LE of the decedent would apply, which could be greater than 10 years. That said, using the decedent’s age will require annual RMDs, while the 10 year rule under a qualified trust does not have annual RMDs, just the requirement to drain the account by the end of the 10th year. Tradeoffs.
Permalink Submitted by Mel Langer on Fri, 2020-11-06 22:03
Thank you so much. Crystal clear, as always!