Owner of Roth IRA and Traditional IRA to name Contingent Beneficiary, a Revocable, Marital, or Family Trust

Submitted by Alice Zab on Wed, 2023-12-20 21:26

(1) May the Owner of Roth IRA name Contingent Beneficiary a trust?
If allowed to name the trust as contingent beneficiary, what type of trust is recommended? Revocable, Marital, or Family Trust?
Does the lifetime rule apply for the trust when the trust inherits, if not how many years are allowed?
(2) Same question as (1) for traditional IRA instead of Roth IRA.
(3) When the spouse (over 59.5) inherits the Roth IRA may the spouse transfer the inherited Roth IRA funds into own existing Roth IRA or must a new Roth IRA be created under the spouse’s name.
In either case, may the spouse name the beneficiary a trust (similar questions as 1 and 2 above where the owner is now the spouse)

(4) Are the inheritance rules regarding when the retirement account must be closed for beneficiary the same for solo 401K as traditional IRA and Roth IRA?
Thank you in advance!



Submitted by Alan - IRA critic on Wed, 2023-12-20 23:57

  • The IRA owner of a TIRA or Roth IRA can name any primary or contingent beneficiary they wish. For a trust, the choices are conduit trusts and accumulation trusts and the trust provisions vary with the need the trust is intended to fulfill (eg creditor protection, special needs trusts, spendthrift trusts, marital trusts, etc.). Choice of a competent trustee is critical. If the trust is contingent the primary beneficiary must either pre decease the owner or file a disclaimer for the trust to inherit. Finally, the trust must be qualified for look through to the trust beneficiaries for the RMDs to be based on the ages of individual trust beneficiaries, and for a Roth IRA to avoid the 5 year rule. For qualified trusts other than for the disabled, the 10 year rule usually applies unless the trust is a conduit trust. 
  • Yes, a spousal beneficiary of a Roth IRA can elect to assume ownership and can combine it with their own Roth IRA and name any beneficiary or type of beneficiary they wish. 
  • RMD rules are the same for qualified plans and IRAs, except that for a Roth account the owner is always treated as passing prior to RBD. That avoids annual RMDs for 10 year rule beneficiaries.
  • These comments are general in nature, as the RMD rules are very complicated and there are exceptions to some of the rules. A trusts or estates attorney should be consulted regarding trust provisions that best address the needs of a retirement plan owner.


Submitted by Alice Zab on Thu, 2023-12-21 23:31

Alan, thank you for your reply.  Regarding your reply to my question (3), Yes ... can combine inherited IRA with own Roth IRA and name any beneficiary or type of beneficiary they wish; what issues does the beneficiary need to deal with upon inheriting the co-mingled account?Thank you in advance!



Submitted by Alan - IRA critic on Thu, 2023-12-21 23:45

  • If a Roth IRA inherited from a spouse is combined with the remaining spouse’s own IRA, when determining when the combined Roth becomes qualified, the following rules apply. The 5 year holding period starts with the year in which either spouse made their first contribution, but the age 59.5 requirement is that of the surviving spouse. Once both requirements are met, the combined Roth is qualified and entirely tax free, with no annual RMDs. The surviving spouse of course names their own beneficiary.

 



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