With a trust as beneficiary of your IRA, the money will go to the trust when you die, so there is no valid reason to name contingent heirs. The more important consideration is to make sure your trust is properly set up to act as the beneficiary. If not, the trust could end up with a big tax bill upon your passing.
Beneficiary Trust Considerations
Naming your trust as your IRA beneficiary lets you keep control of how the IRA is paid out after you are gone. The trustee you name must follow your instructions concerning how distributions are paid to the beneficiaries of the trust -- within the tax rules of inherited IRAs. Since the trust will most certainly receive your IRA when you are gone, the people you want to be beneficiaries of your IRA should instead be beneficiaries of your trust.
Proper Trust Provisions
If you name an existing trust as beneficiary of your IRA, make sure the trust has been set up to avoid immediate taxation of your IRA. The trust must give the trustee the ability to pay out the required IRA minimum distributions for beneficiaries. Often a trust can only pay out earnings, and that setup won't work for a trust as IRA beneficiary -- especially if you want to avoid taxes and protect the value of the IRA.
Distributions to Beneficiaries
The tax rules allow a real-person IRA beneficiary to take annual withdrawals based on the beneficiary's age when the IRA owner died. This move allows the bulk of the account to continue to grow tax-deferred. With a trust as beneficiary, the distributions will be calculated based on the age of the oldest trust beneficiary. The trustee who handles your trust and the inherited IRA must make sure at least this minimum is taken from the account and passed to the beneficiaries.
Consider Another Setup
If you are married -- or get married at some point in the future -- a common setup is to name the spouse as primary beneficiary and the trust as contingent. A spouse who inherits an IRA usually gets the most flexibility with the account to either use the money in retirement or avoid taxation. The IRAs of both of you can be set up this way, and the IRA money will be dropped into the trust when the second of you dies.
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