Should your trust be the beneficiary of your IRA?
Most people name their trust on every account because that’s what they were told to do. For one account in particular, that choice can quietly cost your family a lot more in taxes.
The short answer
Sometimes, but not by default. Naming a trust on a traditional IRA can mean the money is taxed at the trust’s higher rates, and it can take options away from your spouse, so it’s a choice worth planning.
Why IRAs are different
Many people name their trust on every account because that’s what they were told to do. For a house or a brokerage account, that’s usually fine. A traditional IRA is different. Every dollar in it still gets taxed when it comes out, and the beneficiary you list decides who pays that tax and how quickly.
What changes when you name the trust
- Your kids directly: each child generally gets up to ten years to spread the withdrawals out at their own tax rates.
- Your trust: the same money may be taxed at the trust’s rates instead, and trusts reach the top federal bracket at around $16,000 of income.
- Your spouse: if you name the trust instead of your spouse, your spouse may lose the option to roll the account into their own IRA.
When a trust still makes sense
A trust can still be the right answer, for example with young children, a child with special needs, or a second marriage. The point is that it should be a planned decision, not one your family discovers later.
How we handle it
At Sansone CPA & Financial, we coordinate your tax, investment, and retirement decisions so your beneficiary forms and your trust work together.
This article is general education, not tax, legal, or investment advice for your situation. Tax rules change, so talk with us before acting on it.
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