Be careful when choosing a beneficiary


Q. Can a living trust be the beneficiary of a Roth IRA?
— Planning

A. The simple answer is yes, but without knowing more about your personal situation, we can’t tell you if it’s the best way to go for you.

There are several things you need to know here.

By making a living trust your beneficiary, distributions upon your death will become mandatory based on the life expectancy of the oldest beneficiary named in the trust, said Steven Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.

“This becomes critical if you are currently married since you will lose the ability for a spousal rollover by naming the trust as your beneficiary,” Gallo said.

Current law allows for IRAs to be passed to a spouse as a beneficiary, and the spousal beneficiary can treat the account as if it was their own IRA, Gallo said.

“In the case of a Roth, that means the surviving spouse can continue to defer distributions tax-free for their lifetime,” he said. “By naming the living trust as beneficiary, this benefit is lost even if your spouse is one of the living trust beneficiaries as distributions are required to begin immediately if the beneficiary is anyone other than a spouse.”

Therefore, he said, you would forfeit the ability to allow the funds to continue to grow tax-free for a longer period of time.

You should speak to an estate planning attorney who can consider your entire financial picture before you decide if this is right for you.

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