August 22, 2024
Does the 10-Year Rule Apply to Roth IRAs in Legacy Trust?
In this video, we discuss whether the 10-year withdrawal rule applies to Roth IRAs left to beneficiaries in a Legacy Trust. We’ll explore the implications of this rule and what it means for the protection of your assets after withdrawal. Learn how this rule impacts your estate planning and how to best manage your Roth IRA for future beneficiaries.
Episode Transcript:
Does a 10 year withdrawal rule still apply if Roth IRAs are left to our designated beneficiaries on a legacy trust set up by us? If yes, then those assets after withdrawal from Roth are no longer protected.
So in 2019, and it became effective January 1st, 2020, we passed the SECURE Act. And the big thing with the SECURE Act is your required minimum distribution age went from 70 and a half, pushed it back to 72, and then SECURE Act 2. 0 pushed it back to 73 or 75, depending on your age. That’s not the real reason they passed the SECURE Act.
The real reason they passed the SECURE Act is prior, kids or beneficiaries could stretch the taxes over their lifetime. But you would have RMDs. Required minimum distribution, so they would have to take out a little bit each year. And the same with Roths. Not only traditional IRAs where they’d have to pay tax, but they would have to take out of the Roth, they would have a RMD.
It was not taxed. The Roth is tax free, but they still would have to take out these RMDs over their lifetime. So post Secure Act, what happens is now everything has to be taken outta the IRAs or Roth within 10 years. If it’s taken out of a pre-tax account, they have to pay the tax. If it’s a Roth, it has to come out, but it has to be tax free.
But that said, think of a trust kind of like a box. Inside of that trust could be a Roth. And so if you’re forced to take the money out of the Roth, the money can still stay in the trust, but now instead of a trust Roth, it’s a trust brokerage account. So it still would have a legacy provision. Think of the trust kind of like a box.
We could have a Roth in there. We could have a brokerage account. All we have to do is take the money out of the Roth and put it into the brokerage account. So we still get the same benefits. We just have to take it out of the Roth.
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