Placing an IRA in a Trust for a Child

Dear Retirement Adviser,

Can Roth or traditional regular individual retirement accounts be placed into a trust? And if so, what kind of trust should it be? I would like my daughter to get the money without problems.

Thank you,

-Lyda Legalities

Dear Lyda,

The answer to your basic question, whether a Roth or traditional IRA can be placed in a trust, is an easy one. But the details get complicated. You should work with your attorney to determine whether to place these accounts in a trust and what kind of trust is best for your situation. For anyone considering what to do for a spouse under similar circumstances, the issues are more complex and are covered elsewhere on our site.

You can transfer a Roth IRA or traditional IRA into a trust. But, if you do that while living, it's possible that it will be considered a distribution and trigger income tax consequences. Creating a trust and naming it as the beneficiary of your IRA(s) is one way to finesse the issue.

If the trust is established as a conduit, or see-through trust, and your daughter is not a minor child when you die, it can allow your daughter to pay income taxes at her personal income tax rates. That's as opposed to the higher income tax rates typically paid by a trust alone.

I would ask what you're trying to accomplish by establishing the trust. You can name your daughter as beneficiary and she'll get the account at your death. If you live in a community property state and are married, your spouse may have a claim on your IRAs and would have to sign off on designating your daughter as the account's beneficiary.

The trust as beneficiary may work well if you're talking about a minor child or an adult child with special needs, or as a way to manage estate taxes. Spendthrift provisions in the trust could limit your daughter to periodic withdrawals over time, subject to Internal Revenue Service distribution requirements.

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