Can a special needs trust save me taxes on retirement funds?


Q. I have Required Minimum Distributions from IRA accounts. If I direct that those distributions not go to me, but directly to a special needs trust set up for a disabled daughter, are those distributions tax-exempt to me?
— Trying to save

A. It’s great that you want to look out for your daughter.

But this strategy won’t save you on taxes.

Required Minimum Distributions (RMDs) from IRAs must be taken when the IRA owner attains either 70 ½ before Dec. 31, 2019, or age 72 for those who did not attain 70 ½ by that said, Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

That age change was part of the Setting Every Community Up for Retirement Enhancement Act, or SECURE Act, which was enacted in December 2019, he said.

“Since you are currently required to take RMDs, the only way to avoid taxation is to utilize the Qualified Charitable Distribution (QCD) strategy which allows the taxpayer to direct up to $100,000 annually from their IRA to a qualified 501(c)(3) charity,” Papetti said. “Note that this strategy is only available to taxpayers who are age 70 ½ or older.”

So to your question, you cannot avoid taxation of your RMD by directing it to a special needs trust set up for your disabled daughter, he said.

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This story was originally published on Jan. 12, 2021. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.