IRA rollover and taxation of distributions
The IRA is part of the marital trust (a charitable remainder trust and a “complex trust”, using a regular calendar year) The trust is the beneficiary, however I am the sole income beneficiary, but not theTrustee.
I received my IRA distribution from the trust more than 90 late. (IRA distrib. was received by the trust the first part of December and paid out to me in the middle of April the following year.
The IRA distribution did not carry out DNI – see Natalie Choate, 2002 edition 6.1.03 -IRS Section 651 (a) and 661 (a)
1.Who is liable for the income tax on the IRA distribution – myself or the trust?
2. Can I roll over the benefits into my personal IRA and therefore avoid paying income tax? Do I need to secure a PLR first?
Natalie Choate – 2002 edition 3.2.09
Thanks in advance
Mary
Permalink Submitted by Al Fry on Tue, 2010-07-27 15:23
Others are better qualified to answer your questions (Bruce, Mary Kay, Alan, et al). However this is another example of wanting “A” to be the bene of my IRAs, so I guess I’ll name “T” as the bene.
Permalink Submitted by mk foss on Wed, 2010-07-28 12:58
The second question is the easiest one to answer. You cannot avoid tax on an inherited IRA distribution by rolling it into an IRA. This is true whether the you’re named directly as an IRA beneficiary or receive it as a trust beneficiary.
When the trust beneficiary is an IRA, the tax treatment of the distibutions depends on the specific trust. Usually a marital trust will distribute all income. The IRA distribution is taxable income but is not always income for trust accounting purposes. The trust agreement is the first source, it can define whether a retirement plan distribution is considered income or principal or part of each. If the trust agreement doesn’t define whether the distribution is income or principal, you look to state law – which often treats part of the distribution as principal and part income. If you are receiving distributions, it is presumably treated as income. If you receive the income, you pay tax on it. Individual tax rates are lower than trust income tax rates so usually everyone is better off when the beneficiary pays the tax.
If the IRA distribution is treated as principal it is not part of DNI and is not paid out to the beneficiary – in that case the trust pays the tax.
Permalink Submitted by Bruce Steiner on Sun, 2010-08-01 02:29
The facts presented are not clear. Is the trust a marital trust, a charitable remainder trust, or a complex trust?
The original poster should consult with tax/estates counsel, who will be better able to answer her questions after seeing the trust agreement.