When designating beneficiaries for a retirement account, one option is to leave the money to a trust. In the financial community, the advantages and disadvantages of this route have𒀰 been a topic of ongoing debate between estate planning attorneys ꧒and financial advisors.

Naming a Trust As a Benefi🌃ciary of a Retirement Account: An Overview

Qualified retirement savings accounts are a great way to build a retirement nest egg. But what happens to the mon♓ey in the account if the account holder passes away?

For retirement accounts, investors are given the opportunity to name both primary and 澳洲幸运5官方开奖结果体彩网:contingent beneficiaries—that is, the 𝓀person or entity who will inherit the account upon the origi♋nal owner's death.

The exact mechanism for doing this can get complicated, and factors like taxes and 澳洲幸运5官方开奖结果体彩网:required minimum distributions (RMDs) have to be taken into account. The number of beneficiaries named—and whether they are the benefactor's spouse or not—also makes a difference.

Naming 澳洲幸运5官方开奖结果体彩网:a trust as the beneficiary has pros✨ and cons that need to be considered. Read on to learn if it is the best 🐠option for you.

Pros of🃏 Naming a Trust As Beneficiar😼y of a Retirement Account

澳洲幸运5官方开奖结果体彩网:Naming a trust as a beneficiary is advantageous if your beneficiaries are minors, have a disability, or cannot be trusted with a large sum of money. Some attorneys will recommend a special trust be established as the 澳洲幸运5官方开💯奖结果体彩网:individual retirement account (IRA) beneficiary to avoid its assets becoming part of a surviving spouse's estate, all to avoid future 澳洲幸运5官方开奖结果体彩网:estate tax issues.

Cons of Naming a Trust As Benefic🌊iary of a R🐬etirement Account

The primary disadvantage of naming a trust as beneficiary is that the retirement plan's assets will be subjected to required minimum distribution (RMD) payouts, which are calculated based on the life expectancy of the oldest beneficiary. If there is only one beneficiary, it does not matter as much, buꩵt it can be problematic if there are several heirs of varying ages: The ability to maximize the deferral potential of the qualified plan's interest is lost under this approach.

In contrast, naming individual beneficiaries will allow each beneficiary to take a required minimum distribution based on their own 澳洲幸运5官方开奖结果体彩网:life expectancy, which can stretch an IRA's earnings out for a longer period of time.

For trusts and accounts inherited after Jan. 1, 2020, there's another wrinkle. Under the Setting Every Community Up for R✅etirem𝕴ent Enhancement (SECURE) Act of 2019, most non-spousal beneficiaries of an IRA must take full distribution of all amounts held in the IRA by the end of the 10th calendar year following the year of the IRA owner's death.

But exceptions to this SECURE Act rule do exist for certain people. Known as eligible designated beneficiaries (EDB), they include a surviving spouse, minor children of the IRA owner (until they reach age 18), disabled or chronically ill individuals, and individuals who are not more than 10 years younger than the IRA owner. For these beneficiaries, the 10-year payout rule does not apply, and the trust can stretch payments out over the EDB’s lifetime, subject to the same life-expectancy rules outlined above.

The Bottom Line

Designating a trust as a beneficiary for a retirement account is a good idea if inheritors aren't capable of handling the money, but it creates complications. If you have questions, consult a qualified attorney.