- Generally, distributing your IRA directly from the financial institution to the beneficiaries is easiest and most common. However, if you want to smooth out distributions of your retirement accounts over ten years to maximize tax efficiency, provide some time or beneficiary readiness controls to distributions, or have unique predeceased contingent beneficiary designations, then having the option to funnel the IRA through the Trust controls can be valuable.
- A Trust must meet IRS See-Through conditions to gain the maximum 10 year tax deferral benefit for the beneficiaries. It’s important to understand all the surrounding conditions to be met otherwise the IRS might default the deferral for each beneficiary to 5 years. The regulations governing the Trust and how it relates to the distribution of the IRA are part of the 26 Code of Federal Regulations Section 1.401(a)(9).
- MyAdvocate specifically calls out the requirements and stipulates that the beneficiaries will receive the minimum distribution as required by the Internal Revenue Code plus allowances for HEMS distributions to allow the Trustees to meet the IRS guidelines.
Considerations when distributing to your spouse via a Living Trust:
Since MyAdvocate designates the spouse as the sole income beneficiary during their lifetime, they only pay the IRA tax due as they take IRA distributions (see RMD rules below) and the maximum 10-year IRA tax deferral benefit for the beneficiaries starts upon the death of the surviving spouse.
This applies to a Will or Living Trust regardless if the spouse is the outright beneficiary or beneficiary of a Spousal Trust.
If you name your spouse or a trust for your spouse:
- You die before Required Minimum Distributions (RMDs) begin:
o Spouse takes RMDs based on their life expectancy
o Entire plan must be distributed (to the beneficiaries) by the end of the tenth year following your spouse’s death (or the final year of your spouse’s life expectancy if sooner)
- You die after RMDs begin:
o Spouse continues RMDs based on the longer of their life expectancy or your life expectancy (if you were still alive)
o Entire plan must be distributed (to beneficiaries) by the end of the tenth year following your spouse’s death (or the final year of your spouse’s life expectancy if sooner)