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M Norton

distributions from IRA in Trust - rollover?

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Trust is the beneficiary of an individual's 401(k) and Roth IRA.  Trust specifies distributions be made to decedent's children at age 25, 30 and 35, distributing 1/3 of their share at each age.  First distributions were made from the taxable account, which is now mostly distributed.  Remaining distribution to be made from the IRA account.  If a distribution is made from the IRA funds, can it be rolled over to an inherited IRA for the trust beneficiary?  What are the options?

Thanks!

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You have to determine whether the trust meets the requirements of 1.401(a)(9)-5, Q&A-7 so that you can treat each child as beneficiary for his/her share, so can use their lives, not just the oldest life. Unlikely that distributions at fixed ages 5 years apart are going to meet RMD rules, however.

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Insufficient information. But as a threshold issue, where the IRA is payable to a master trust you will be hard-pressed to find a trustee/custodian who will recognize individual beneficiaries, or sub-trusts for same, for RMD stretch purposes if that is your goal. That being said, the possibility exists that the trust could stretch the IRA using the life of the oldest beneficiary. It is clearly not a conduit trust, as it does not provide for distributions of the RMD to the beneficiaries. Does it qualify as an accumulation trust? Possibly. Accumulation trusts have special issues. In determining the "oldest life" for RMD purposes contingent beneficiaries have to be considered as well as powers of appointment. A non-person contingent beneficiary can disqualify the stretch, as can the possibility that an interest cojld be appointed to a non-person. In all likelihood the IRAs will have to be cleaned out in 5 years.

 

 

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On ‎3‎/‎12‎/‎2019 at 3:26 PM, Luke Bailey said:

You have to determine whether the trust meets the requirements of 1.401(a)(9)-5, Q&A-7 so that you can treat each child as beneficiary for his/her share, so can use their lives, not just the oldest life. Unlikely that distributions at fixed ages 5 years apart are going to meet RMD rules, however.

 

You know only a designated beneficiary can be an individual and then be able to use their individual life expectancy for RMD calculations and the Trust while clearly a deemed beneficiary cannot be a designated beneficiary. Even if paid to the kids the regulations prohibit the establishment of separate accounts for this definition you referenced. 

 

Norton review1.401(a)(9)-4, Q&A-5(c).

 

Hope this helps Norton

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17 hours ago, Teddy said:

You know only a designated beneficiary can be an individual and then be able to use their individual life expectancy for RMD calculations and the Trust while clearly a deemed beneficiary cannot be a designated beneficiary. Even if paid to the kids the regulations prohibit the establishment of separate accounts for this definition you referenced. 

 

Norton review1.401(a)(9)-4, Q&A-5(c).

If (and we have insufficient info to know) the trust meets requirements of 1.401(a)(9)-4, Q&A-5(b), then the trust beneficiaries, not trust, are treated as the designated beneficiaries. See 1.401(a)(9)-4, Q&A-5(a). So if the distributing plan met the separate share rules, you could, if again the trust meets requirements of 1.401(a)(9)-4, Q&A-5(b), which we don't know, look at each individual human beneficiary.

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On 3/12/2019 at 9:02 AM, M Norton said:

Trust is the beneficiary of an individual's 401(k) and Roth IRA.  Trust specifies distributions be made to decedent's children at age 25, 30 and 35, distributing 1/3 of their share at each age.  First distributions were made from the taxable account, which is now mostly distributed.  Remaining distribution to be made from the IRA account.  If a distribution is made from the IRA funds, can it be rolled over to an inherited IRA for the trust beneficiary?  What are the options?

Thanks!

Distributions from inherited IRAs cannot be rolled over. An exception applies to spouse beneficiaries, which would permit the amount to be rolled over to the spouse's own ( non-Beneficiary) IRA . As a result, the answer to your question "If a distribution is made from the IRA funds, can it be rolled over to an inherited IRA for the trust beneficiary? " is no.  However, depending on the provisions of the trust and how accommodating the custodian is willing to be,  the assets could be transferred to inherited IRAs for the trust beneficiaries. If they want to keep the (Non RMD portion of the) assets in IRAs, then they must not distribute the amount - because the distributions would not be eligible or rollover.

Where you said " First distributions were made from the taxable account", is that what you meant to say? ----because , you mentioned a 401(k) and an IRA in the first sentence.

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On 3/12/2019 at 4:26 PM, Luke Bailey said:

You have to determine whether the trust meets the requirements of 1.401(a)(9)-5, Q&A-7 so that you can treat each child as beneficiary for his/her share, so can use their lives, not just the oldest life. Unlikely that distributions at fixed ages 5 years apart are going to meet RMD rules, however.

Hi Luke,

They would still have to use the life expectancy of the oldest beneficiary. They would be able to use each child's life expectancy only if each child was named as beneficiary under separate sub-trusts, and the sub-trusts were named as  beneficiaries of the IRA. PLR  200537044 ( though not authoritative) . I think there is a more recent PLR on this isssue- I will check.

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18 hours ago, Appleby said:

Hi Luke,

They would still have to use the life expectancy of the oldest beneficiary. They would be able to use each child's life expectancy only if each child was named as beneficiary under separate sub-trusts, and the sub-trusts were named as  beneficiaries of the IRA. PLR  200537044 ( though not authoritative) . I think there is a more recent PLR on this isssue- I will check. 

That's a very long PLR, Appleby.

With respect to M Norton's original question, I'm still wondering how RMDs will be met, given that distributions are based on 5-year age attainments. But the question doesn't provide a detailed description.

Regarding the separate lives issue, suppose the trust said the IRA was to go 1/3, 1/3, 1/3 to each beneficiary, and that an amount equal to the RMD would be distributed each year. Suppose also that the plan said that if the participant had multiple beneficiaries, separate accounts would be created for each. In such a situation, if the trust met the requirements to be looked through, would it not incorporate the plan's provision regarding separate shares, so the "look through" would be to each separate beneficiary?

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