July 12, 2016
The Michigan Retirement Plan Trust: Your Secret to Maximizing Income Tax Deferral, Protecting Your Retirement Assets & Growing Your Wealth
The Michigan Retirement Plan Trust Explained: What is a Retirement Plan Trust & What Are its Benefits?
A Retirement Plan Trust is a stand-alone trust that is created solely to hold retirement accounts. It’s a type of revocable trust, but stays separate from your typical revocable trust. It can be set up during the lifetime of the of the IRA holder and is named as a beneficiary of the IRA (typically after a spouse is).
In simple terms, a Retirement Plan Trust (RPT) lets you maximize income tax deferral and wealth accumulation, while also protecting your retirement assets from probate, the IRS & long-term medical costs.
The Retirement Plan is fairly new, so don’t be surprised if your financial planner, CPA, or even your estate planner is unfamiliar with it.
We recommend a qualified Retirement Plan Trust for any Michigan clients who have retirement accounts greater than $150,000.
What can a Retirement Plan Trust do?
Primarily, a qualified Retirement Plan Trust protects your retirement accounts and forces the stretch out of your accounts (so you can minimize taxes on said accounts).
Forced Stretch Out of Required Minimum Distributions (RMDs)
Thanks to a 2004 ruling from the IRS, with a Retirement Plan Trust you can now “stretch out” your taxable required minimum distributions (RMDs) over your lifetime, all while maintaining the benefits of a trust if a Retirement Plan Trust is named as a beneficiary.
In the past, too often beneficiaries were named outright to receive IRAs or 401(k)s. In these cases, they ended up blowing the stretch out by taking a lump sum distribution. But with a Retirement Plan Trust, this isn’t a concern.
How does a Retirement Plan Trust work?
First, the IRA owner must set up the Retirement Plan Trust during their lifetime and it must meet the strict IRS requirements. Typically, it’s set up as a revocable trust, meaning it can be changed at any time. The trust will then name beneficiaries. The younger these beneficiaries are, the more powerful the stretch out provisions will become.
From there, new beneficiary designations must be completed and the Retirement Plan Trust will be named as the beneficiary of the retirement account.
Then, at the owner’s death, the IRA account is retitled and the RMDs pour into the Retirement Plan Trust. These will either be paid out or held per the trust’s terms. The beneficiaries of the account then receive the benefit of both the stretch as well as the asset protection.
Now that you know what a retirement plan trust is what the the benefits of a retirement plan trust are, continue reading to learn how to set one up.
Other trusts you should know about
To avoid probate, distribute your assets, and protect your assets: The Castle Trust
To protect your heirs’ inheritance & your family wealth for generations: The Legacy Inheritance Trust
How do I set up a Michigan Retirement Plan Trust?
Christopher J. Berry, the Elder Care Firm’s founder and Certified Elder Law Attorney, was one of the pioneers of the Retirement Plan Trust in Michigan and has helped dozens of families set it up.
You can meet with Chris and ask him your Retirement Plan Trust questions in a relaxed, no-obligation setting by attending his free “Legal, Financial & Tax Planning for the 2nd Half of Life” workshop below.
Join our free Legal, Financial & Tax Planning for the 2nd Half of Life workshop to learn how to protect your “stuff” (including your estate, assets & IRAs) from probate and the IRS, save you and your family from the high costs of long-term medical care & grow a legacy to pass on to your family you can be proud of.
Learn more about the Retirement Plan Trust in our free guide:
The 5 Mistakes Almost Everyone Makes with Their IRA