Conduit Trust Stretch IRAs – Lump sum tax or allows for 10 year stretch?

Submitted by Kyle Schiffler on Thu, 2020-01-30 16:13

I have an estate planning firm I have worked with for many of my clients. They have set up conduit trust stretch IRA language in their documents that we have used to set up the clients contingent beneficiaries. On a previous Ed Slott webinar I heard Ed say that conduit stretch IRA would trigger a lump sum tax as it would not allow the 10 year stretch option. I wanted to know with the final SECURE Act bill if this is still the case as I am hearing from estate planning attorneys I work with that conduit stretch IRAs will still allow for a 10 years stretch and not a lump sum. Since this is new I feel like there is a lot of discussion on this new topic and have not got any official stance on this that we can use and site to feel more confident on when discussing conduit trust stretch IRA structure with clients and their other professionals such as attorneys and CPA. Any insight on this would be greatly appreciated.



Submitted by Alan - IRA critic on Thu, 2020-01-30 22:55

I think Ed was referring to a conduit trust that only permits the distributions of RMDs from the IRA. There are no RMDs under the 10 year rule until the final year, so those trusts could not request a distribution until the last year and then it would have to be the entire inherited IRA balance. Many other conduit trusts do allow distribution other than RMDs, in which case the IRA could be distributed gradually over the 10 year period. In either case, the IRA must be drained within 10 years unless the beneficiary qualifies as “eligible”. Coming IRS guidance might better clarify some of these issues.

Submitted by Bruce Steiner on Fri, 2020-01-31 03:43

  • Conduit trusts rarely made sense (except occasionally for spouses where the IRA owner didn’t want the spouse to control the assets) even under the old law.  They forced out all of the IRA benefits, throwing them into the beneficiary’s estate and exposing them to the beneficiary’s creditors and spouses, just not all at once.
  • Except for eligible designated beneficiaries, they’re worse now since they force out all of the IRA benefits within 10 years.

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