IRA Trust as beneficiary

Submitted by Christopher Cushman on Wed, 2013-05-01 17:09

Prospect came in to find out what to do. Mom passed away in her early 50’s and left IRA to trust with kids as beneficiaries of trust income. Children (in their 20’s) waited three years and then moved IRA to knew account per trust language. One child now has full rights to money and wants a full distribution. NO distributions have been paid and no RMD’s have been paid. Does the 5 year rule still apply here since it hasn’t been 5 years since the date of death? Does the 5 year rule allow you to bypass RMD’s or do those have to be paid anyway? Does moving the money to the IRA trust mean that they don’t have the option of removing all the money 5 years after death? Thanks in advance for any help.



Submitted by Alan - IRA critic on Wed, 2013-05-01 17:38

  • If the trust is not “qualified” for look through treatment, the 5 year rule will apply. Under the 5 year rule, there are no RMDs for any particular year, but the IRA must be fully distributed by the end of the 5th year following the year owner passed. Note that if the trust details were not provided to the IRA custodian by 10/31 of the year following the year of owner’s death, the trust will NOT be qualified.
  • If the trust IS qualified, the life expectancy RMDs can be restored by making up the delinquent RMDs and filing form 5329. RMDs must be based on the oldest trust beneficiary including remainder beneficiaries. The provisions of the trust determine the distribution options of the IRA money out of the trust to the beneficiaries. IRA RMDs must be life expectancy for all beneficiaries or none. Even if one child receives their entire share from the trust, the 5 year rule cannot apply to him and life expectancy to the others for purposes of Form 5329.

Submitted by Christopher Cushman on Wed, 2013-05-01 18:12

My understanding is that the trust is “qualified” for look through treatment.  If the kids decided to would they have the option of the 5 year rule? (I’m pushing for them to leave it tax deferred as long as possible, but I have to tell them their options.)  If they chose the 5 year rule could it be spread out over the two tax years or does it all have to come out in the same tax year?  And lastly, would any large distribution from the IRA account have to be rolled over to a trust account for the beneficiary who isn’t old enough to receive all the money.  Thanks again for your help!

Submitted by mk foss on Wed, 2013-05-01 18:34

With the 5-year rule you just have to emplty the account by December 31 of the year that contains the five year anniversary of the death. It’s a good idea to take it out over a few years instead of all at once. The only requirement is the date when it must be fully distributed. Although there is no 10% penalty with an inherited account, there could be a 50% penalty if they don’t withdraw everything by the five year deadline.

Submitted by John Lau on Fri, 2013-05-03 03:43

in taking RMD over the single life of the oldest beneficiary INCLUDING REMAINDER BENEFICIARIES, does it include contingent beneficiaries ? 

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