Estate planning – IRA and Retirement Account Rules You Should Know About
by Rick Zich
Today’s article about estate planning is how you can integrate your qualified accounts, also known as retirement accounts into your trust or will. Estate planning is no longer just about deciding who receives your property after death. For retirement accounts such as IRAs, the way assets are titled, who is named as a beneficiary, and whether the account is Roth or traditional can significantly affect how much wealth is ultimately preserved for your spouse and future generations. When viewed through the lens of trust ownership, these decisions become even more important because trusts can provide control, protection, and long-term tax planning advantages.
When you visit us for your annual review, you will participate in our “pre-game” which is when we review all your information on your accounts. One of the most critical aspects of that pre-game is ensuring that we name beneficiaries correctly. Many people assume their will controls who inherits an IRA, but retirement accounts pass directly according to the beneficiary designation form on file with the financial institution. This means an outdated or incomplete designation can unintentionally disinherit loved ones or create conflict among heirs. For example, if an ex-spouse remains listed as the beneficiary after a divorce, that person may legally inherit the account despite contrary instructions in a will or trust.
Trusts are often used as IRA beneficiaries because they allow the account owner to control how and when beneficiaries receive funds. This can be especially useful for minor children, beneficiaries with disabilities, blended families, or heirs who may not be financially responsible. A properly drafted trust can protect inherited assets from creditors, divorce settlements, or reckless spending while ensuring the retirement account continues to support family goals across generations. However, trusts must be carefully structured to comply with IRS rules, or they could trigger accelerated taxation and reduce the value of the inheritance.
The importance of trust planning increased dramatically after the passage of the SECURE Act in 2019. Before the law changed, many beneficiaries could “stretch” inherited IRA distributions over their lifetime, allowing continued tax-deferred growth for decades. The SECURE Act eliminated this strategy for most non-spouse beneficiaries and replaced it with a 10-year withdrawal rule. Under this rule, most inherited IRAs must be fully distributed within ten years of the original owner’s death.
The new rules created significant challenges for trusts named as IRA beneficiaries. Certain “conduit trusts,” which were designed under old stretch IRA rules, may now force large taxable distributions to beneficiaries within the 10-year period. This could expose beneficiaries to higher income taxes and defeat the trust’s original purpose of long-term protection. As a result, estate planning attorneys are increasingly revising trust structures to align with SECURE Act requirements.
Some beneficiaries are still considered “eligible designated beneficiaries” and may qualify for lifetime distributions rather than the 10-year rule. These include surviving spouses, disabled individuals, chronically ill beneficiaries, minor children of the account owner, and beneficiaries who are less than ten years younger than the deceased. Trusts created for these beneficiaries can still provide long-term tax advantages if drafted correctly.
Another important consideration is whether retirement assets are held in a Roth IRA or a traditional IRA. Traditional IRAs are funded with pre-tax dollars, meaning beneficiaries must pay income taxes on distributions. Under the SECURE Act’s 10-year rule, heirs may be forced to withdraw substantial sums during their highest earning years, potentially pushing them into higher tax brackets.
Roth IRAs, on the other hand, offer tax-free qualified distributions because contributions are made with after-tax dollars. Although beneficiaries are still subject to the 10-year withdrawal requirement under the SECURE Act, withdrawals from inherited Roth IRAs are generally tax-free. This makes Roth IRAs particularly attractive for trust-based inheritance planning because the account can continue growing tax-free during the 10-year window before final distribution.
For families focused on multigenerational wealth preservation, integrating trusts with Roth conversion strategies can be extremely powerful. A trust can protect beneficiaries while a Roth IRA minimizes future tax burdens. In contrast, leaving a large traditional IRA to a trust without careful planning could create unnecessary taxation.
Ultimately, effective estate planning requires coordination between beneficiary designations, trust structures, and retirement account strategies. Naming beneficiaries correctly, understanding SECURE Act inheritance rules, and evaluating Roth versus traditional IRA planning are all essential components of preserving family wealth. Through thoughtful trust ownership and professional guidance, families can create an estate plan that protects assets, reduces taxes, and ensures their legacy is carried forward according to their wishes.
If you would like to review how your beneficiaries are set up or if a more comprehensive look at your next generation planning is structured, please give us a call.
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
