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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Estate trust with rollover IRA
Expert: Glenn D Schnabel
Date: 9/6/2008
Subject: Estate trust with rollover IRA
Question
I am the executor of estate which was left in trust for distribution among brothers and sisters. Bulk of estate (400K) is a rollover IRA; beneficiary was the trust.
What is the tax rate for distributions from this IRA? I do understand that distributions will be taxed as ordinary income. Is it advantageous to withdraw the money over three or four years?
Thank you.
Answer
Patricia,
Thank you for your question.
If the participant in the plan was born before Jan 2, 1936, then the distribution may qualify for 10 year averaging. This is reported on IRS form 4972 This distribution would benefit the beneficiaries, if the participant qualified.
If not. then as long as you meet the minimum distribution requirements.
According to the IRS web site:
Trust as beneficiary. A trust cannot be a designated beneficiary even if it is a named beneficiaries
However, the beneficiaries of a trust will be treated as having been designated as beneficiaries if all of the following are true.
1.
The trust is a valid trust under state law, or would be but for the fact that there is no corpus.
2.
The trust is irrevocable or will, by its terms, become irrevocable upon the death of the owner.
3.
The beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the owner's benefit are identifiable from the trust instrument.
4.
The IRA trustee, custodian, or issuer has been provided with either a copy of the trust instrument with the agreement that if the trust instrument is amended, the administrator will be provided with a copy of the amendment within a reasonable time, or all of the following.
1.
A list of all of the beneficiaries of the trust (including contingent and remaindermen beneficiaries with a description of the conditions on their entitlement).
2.
Certification that, to the best of the owner's knowledge, the list is correct and complete and that the requirements of (1), (2), and (3) above, are met.
3.
An agreement that, if the trust instrument is amended at any time in the future, the owner will, within a reasonable time, provide to the IRA trustee, custodian, or issuer corrected certifications to the extent that the amendment changes any information previously certified.
4.
An agreement to provide a copy of the trust instrument to the IRA trustee, custodian, or issuer upon demand.
The deadline for providing the beneficiary documentation to the IRA trustee, custodian, or issuer is October 31 of the year following the year of the owner's death.
The separate account rules cannot be used by beneficiaries of a trust
1)What is the tax rate for distributions from this IRA?
It varies depending on each taxpayers tax rate.
2) Is it advantageous to withdraw the money over three or four years?
If the distribution qualifies for ten year averaging, it would be advantageous to take it in one distribution to each beneficiary.
If the distribution does not qualify, then it would be better to spread it out over a period of time, as long as it meets the minimum distribution requirements.
According to the IRS web site:
Multiple individual beneficiaries. If as of September 30 of the year following the year in which the owner dies there is more than one beneficiary, the beneficiary with the shortest life expectancy will be the designated beneficiary if both of the following apply.
*
All of the beneficiaries are individuals, and
*
The account or benefit has not been divided into separate accounts or shares for each beneficiary.
Refer to IRS Publication 590 for computation using life expectancy tables.
Hope this is helpful
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