August 15, 2024
Is there an IRA Trust? What are it’s advantage?
Is there an IRA Trust? What are it’s advantage?
In this video, we explore the concept of an IRA Trust. We’ll discuss whether it exists, how it works, and the potential advantages of setting one up. Whether you’re planning for retirement or looking to secure your legacy, understanding the potential of an IRA Trust can help you make informed decisions.
Episode Transcript:
There used to be, so we used to set up a lot of IRA stretch trusts or retirement plan trusts where we would set up a specific trust just for the retirement accounts, the IRAs. So this also gets to someone else’s question. Can you name a trust as a beneficiary of the IRA? We used to do it all the time because prior to the secure act, you could stretch the taxes, the kids or beneficiaries could strike the taxes over their lifetime.
They’d have an RMD based on their age, but like the RMD for like a grandkid might be like 1%. So 1 percent has to come out of that trust every year. And then if it’s growing, it’s a six. You’re basically creating this annuity for the grandkids or even the kids, but unfortunately that ended with a secure act secure act of 2019.
And what the secure act did is said that if you leave the money to anyone other than a spouse, all the taxes have to be paid within 10 years. So at this point, we’re not doing any type of IRA stretch trusts like our revocable trusts. Our asset protection trust automatically build in the 10 year stretch.
So it doesn’t make sense to set up a separate trust just to stretch out the taxes. Cause the trust that we set up already stretches out the taxes. In the past we would do those all the time, especially with bigger IRAs. And a lot of times we want to leave them to the youngest people possible, like the grandkids, because their RMDs would be so low.
So we used to do a lot of IRA stretch trusts. But unfortunately, that was the big takeaway from the SECURE Act, is that they ended the stretch IRA. So now, if you name basically anyone other than a spouse as a beneficiary, they can only stretch it up to 10 years. Like, even if you name the kid outright. So, if you name the trust, maximum 10 years if the trust is set up correctly.
If you name a beneficiary outright, maximum is 10 years. So, yeah, we don’t do any IRA stretch. Or IRA specific trusts. And if someone tells you to do one, they’re probably just trying to sell you on the idea of like more complicated planning than it needs to be.
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