Conduit Trust and withholdings
Father passes, 3 children beneficiaries of trust. Trust is named beneficiary of IRA.
Can federal withholding from IRA Distributions be passed to beneficiaries?
Father passes, 3 children beneficiaries of trust. Trust is named beneficiary of IRA.
Can federal withholding from IRA Distributions be passed to beneficiaries?
Permalink Submitted by Alan - IRA critic on Wed, 2025-09-24 15:25
No, not until the trust is terminated.
IRA distributions to a conduit trust, which must distribute all income to a trust beneficiary, should have withholding declined, as the income will be passed through to the beneficiaries on a K 1 and the beneficiaries will have to pay taxes on these distributions and plan to avoid underpayment penalties. Any withholding from the IRA distribution to the trust is therefore a mistake.
Any withholding paid to the IRS under the trust EIN is basically quarantined in the trust and cannot be transferred to the trust beneficiaries. Although when the trust is terminated it will get an IRS refund which could then be paid to the beneficiaries.
Of course, if the trust was an accumulation trust and paid taxes on IRA distributions on a 1041 at the higher compressed trust rates, the withholding to the trust can be applied to the tax liability.