Should a Trust Be Listed as the Beneficiary of 401K/IRA? | Qualified Accounts Beneficiary

In this episode of Berry’s Bites, Chris Berry answers: Should a Trust be listed as the beneficiary of 401k/IRA or a spouse?

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Should a trust be listed as a beneficiary of a 401k or IRA or a spouse? Welcome to Berry’s Bites. Please join our host attorney and financial advisor Chris Berry.

Typically I break almost all assets into these two categories one is qualified one is non-qualified this is just kind of a general way to think of things so qualified accounts are like 401ks IRAs, ROTHs for three B’s 457s and I’m sure there’s more nine qualifieds basically everything else so qualified means there’s some type of tax qualification to them like 401k it’s in the tax code 457.

It’s referring to the tax code and it could either be tax deferred or gross tax free really the way it works is any of these qualified accounts. Typically when we’re talking about beneficiaries so who do you name as a beneficiary of these accounts. Typically and this is just general information we name the spouse first and then we would name the trust if we have a trust as the contingent beneficiary the reason for this is a lot of times a spouse can do what’s called a spousal rollover.

Where now that account becomes that surviving spouse’s account and it really becomes their account let’s say you pass away you’re 75 your spouse is 67. you were taking out rmds now the spouse inherits that. Now they don’t have to take out any required minimum distributions of those pre-tax accounts so I’d say majority of the time we name spouse followed by trust as beneficiaries of qualified accounts and so when we’re putting together a trust and reviewing it and making sure the funding is handled properly and we’re re-titling those assets.

I would say majority of the time we’re naming spouse and then trust if you don’t have a spouse so let’s say you’re single or widowed or divorced then we would almost always name the trust as a beneficiary and I’d say that’s how we handle it like 99.9% of the time. There are certain exceptions but that is almost always the way that we handle it now non-qualified accounts really everything else. Typically we would just name the trust as the beneficiary because the trust typically provides for the spouse first and then if not the spouse then the other beneficiaries are the kids the big reason why I hear we’re naming the spouse first is typically there’s a tax benefit of doing so because they can do a spousal rollover so who should be the beneficiary of my 401k or IRA trust or spouse typically I’d recommend spouse first and then if not the spouse then the trust. Thank you.

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