Hard Earned IRA or 401(k)? Consider a Stand Alone Retirement Trust

Retirement funds held in an IRA or 401(k) are invested tax free, but distributions are taxed as income. Investors typically work with a financial advisor, who can help to make sure that a plan is in place for managing those taxes upon distribution.

What happens though when you pass away? Statistics indicate that the vast majority of IRA and 401(k) beneficiaries (as many as 85%) cash in the inherited funds within 6 months of the plan participant’s death. In most of these cases, little to no planning is done by the participant or the beneficiary to plan for the taxation of these funds. Beneficiaries not only pay taxes on these funds at high rates, they lose the benefit of the tax free growth that can come from an inherited IRA.

A solution to this problem is to leave retirement funds in a look-through trust, sometimes referred to as a Stand Alone Retirement Trust (“SRT”). While there is no hard and fast number for how much a client must have invested in order for an SRT to make sense, the potential benefits can be analyzed with investment software to project the benefit of receiving the tax free growth that comes with stretching IRA benefits over the beneficiary’s lifetime.

If you have retirement funds are interested in hearing more about the benefits of a SRT, please contact me to discuss by phone or at a free planning meeting.

Estate Planning Process