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Trust Law/Level VII · Property and business/7.3 Employers and special assets/Lesson 3

Retirement accounts and see-through trusts

How a trust can be named as beneficiary of an IRA or 401(k), the see-through trust rules, and how the SECURE Act’s 10-year rule applies to conduit and accumulation trusts.

Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Simplest and cheapest: name individuals directly on the beneficiary form, not the estate; a surviving spouse may treat an inherited IRA as their own, and no trust drafting or trust return is needed.
  2. Use a trust only where needed, such as for a minor or vulnerable heir; to be see-through it must be valid, irrevocable at death and have identifiable beneficiaries (Treas. Reg. §1.401(a)(9)-4).
  3. A conduit trust keeps tax low by passing every withdrawal to the beneficiary at personal rates; amounts an accumulation trust keeps are taxed at 37% above $16,000 of 2026 trust taxable income.
  4. Most non-spouse heirs must empty the account by the end of the tenth year after death; where the owner died on or after the required beginning date, annual withdrawals are also required from 2025.
  5. For a disabled or chronically ill beneficiary, an applicable multi-beneficiary trust under §401(a)(9)(H)(iv)–(v) can keep life-expectancy payouts; for employer plans, give trust documents to the administrator by 31 October of the year after death.

MaterialsA sample IRA beneficiary designation form from any custodian’s website26 U.S.C. §401(a)(9), especially subparagraphs (E) and (H), from law.cornell.eduThe final required minimum distribution regulations, T.D. 10001, published in the Federal Register on 19 July 2024Lesson 3.1.2, on funding a living trust, which explains why an IRA is not retitled to a trust

Wonder

  1. What happens to an inherited IRA when the named beneficiary is a trust rather than a person?
  2. Why might it matter whether a trust pays out retirement account withdrawals at once or keeps them?
  3. Why is an IRA left in the owner’s name rather than moved into a living trust?

Explore

  1. An IRA or 401(k) passes to whoever is named on its beneficiary designation, not under a will. It is held in one person’s name and is generally not retitled to a trust: changing the owner can be treated as withdrawing the money, which may make the balance taxable (lesson 3.1.2). A trust can instead be named as the beneficiary. This lesson explains the federal tax rules for that choice and does not recommend it.
  2. The SECURE Act of 2019 changed the rules for most deaths after 2019. Most designated beneficiaries must now empty an inherited account by the end of the tenth year after the owner’s death. Under §401(a)(9)(E)(ii), eligible designated beneficiaries can still take distributions over their life expectancy: the surviving spouse, the owner’s child who has not reached majority, a disabled or chronically ill individual, and an individual not more than 10 years younger than the owner. The final regulations set majority at 21, after which the 10-year rule applies to the child.
  3. A trust is not itself a designated beneficiary, but if it qualifies as a see-through trust, its beneficiaries are treated as the account’s beneficiaries. Under Treas. Reg. §1.401(a)(9)-4, the trust must be valid under state law, be irrevocable or become irrevocable at the owner’s death, and have identifiable beneficiaries. For employer plans, trust documentation must reach the plan administrator by 31 October of the year after death; the final regulations do not apply this requirement to IRAs. If the trust fails, the account is treated as having no designated beneficiary.
  4. With no designated beneficiary, the payout period depends on timing: if the owner died before their required beginning date, the account generally must be emptied within 5 years; if on or after it, payments continue over the owner’s remaining life expectancy. The final regulations (T.D. 10001, July 2024), which apply from 2025, also require annual distributions during a 10-year period when the owner died on or after the required beginning date. IRS notices waived penalties for missed annual amounts in 2021 to 2024.
  5. A conduit trust requires the trustee to pass every distribution received from the account straight to the beneficiary, who is then taxed on it. An accumulation trust lets the trustee keep distributions in the trust. Amounts kept are taxed to the trust, and trust income reaches the top federal rate at a much lower level of income than an individual’s, so accumulating can cost more tax. In return, the trustee keeps control of the money, which some families value for a young or vulnerable beneficiary.
  6. Which of a trust’s beneficiaries are counted decides the payout rule. In a conduit trust, generally only the conduit beneficiary is counted. In an accumulation trust, other beneficiaries who might receive the kept amounts can be counted too, and if any of them is not an eligible designated beneficiary, the 10-year rule generally applies. Exceptions include an applicable multi-beneficiary trust for a disabled or chronically ill beneficiary under §401(a)(9)(H)(iv)-(v). The rules are technical and have changed several times since 2019.

Key facts

  • An IRA or 401(k) passes by beneficiary designation; it is generally not retitled to a trust, but a trust can be named as beneficiary.
  • Under the SECURE Act of 2019, most designated beneficiaries must empty an inherited account by the end of the tenth year after the owner’s death.
  • Under §401(a)(9)(E)(ii), eligible designated beneficiaries are the surviving spouse, the owner’s minor child, disabled or chronically ill individuals, and individuals not more than 10 years younger than the owner.
  • A see-through trust must be valid, irrevocable at the owner’s death and have identifiable beneficiaries; the 31 October documentation rule applies to employer plans, not IRAs.
  • The final regulations (T.D. 10001, July 2024) apply from 2025 and set the age of majority for an owner’s minor child at 21.
  • A conduit trust passes every distribution to the beneficiary; an accumulation trust may keep distributions, which are then taxed at the trust’s compressed rates.

Exercise nine, six, three, one

9CollectList up to 9 facts about a trust named as beneficiary of a retirement account, from a sample designation form, a trust’s terms or this lesson (some sources give fewer), such as who the beneficiaries are, their ages, whether distributions must be paid out and when the owner died.
6ClusterSort them into 6 categories: the account, the owner, the beneficiaries, the trust’s terms, the payout rules, and facts you are unsure about.
3DistillReduce the 6 categories to 3 groups: facts that decide whether the trust is see-through, facts that decide the payout period, and facts that affect who pays the tax.
1CrystallizeWrite 1 sentence explaining, in your own words, the difference between a conduit trust and an accumulation trust.

Fact check

Dates, figures and claims checked against the published sources listed below.

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