Tax Implications of a Roth in RFT
Dear Mr. Slott,
I wish to make my RFT the beneficiary of my Roth, which has a boatload of money. I wish to make instructions how my granddaughter may spend the money over the 10-year period she has the Roth’s money as my heir, because I want her to wait through the 10-year period, continuing to reinvest the Roth’s money, which is presently 11%.
Are there any adverse tax consequences to my plan?
Do you have any suggestions how I may accomplish my goal otherwise?
Thank you sir!
Ed Ricketts
Permalink Submitted by Alan - IRA critic on Fri, 2024-04-05 15:49
No tax consequences, as once the Roth has met the 5 year holding period starting with your first Roth contribution, it will be qualified and tax free. If the trust is qualified for look through, the 10 year rule will apply, but if not qualified it will be subject to the 5 year rule instead. Make sure the trustee can carry out the provisions in the trust, and that includes providing a copy of trust provisions to the Roth custodian no later than 10/31 of the year following your death.
Permalink Submitted by Bruce Steiner on Sun, 2024-04-14 22:47
What is an RFT? If you want to leave it in trust for your granddaughter, why not leave it in trust for your granddaughter?
It’s generally better for the trust to be discretionary rather than “making instructions” for it. No one knows what the future will bring.