A trusteed IRA can help you leave your IRA
assets to your children without the concerns of losing the tax advantages
available. This type of IRA is a traditional retirement account with some of
the estate-planning advantages of a trust that more financial services
companies are starting to market to baby boomers.
Trusteed IRAs are for people planning to leave
IRAs to their heirs. They are designed to provide a long-term distribution plan
for withdrawals. Although such accounts cost more to administer than
plain-vanilla IRAs after the original owner's death, they're cheaper than
setting up trusts—and less likely to run afoul of tax rules.
Cost Than Trusts
Some providers recommend a trusteed IRA product
for accounts worth at least $2 million since in many cases the assets will be
needed during retirement or for a surviving spouse.
One big advantage of the trusteed IRAs: IRA
owners can prevent their beneficiaries from spending down the accounts right
away. Instead, they can limit their withdrawals to the minimum amount that the
Internal Revenue Service requires heirs to take out annually. That way, the
remaining investments can continue to grow tax-deferred—or, in Roth accounts,
There are some risks to consider when
evaluating a trusteed IRA. First, the trust could end up with a higher tax
burden since trust tax rates are higher than most indvividuals’ income tax
rates. Second, there is a risk that the IRS will not allow the trust to be
deemed a “see-through” or “conduit” trust which will disqualify beneficiaries from
receiving periodic withdrawals stretched out over a long period.
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article in The Wall Street Journal by