IRA Conduit Trust vs Accumulation Trust: Which Is Right?
Understanding the two types of trusts for inherited IRAs. Learn when each makes sense and how SECURE Act changed the rules.
Key Takeaways
- 1Conduit trusts pass RMDs directly to beneficiaries
- 2Accumulation trusts can retain distributions inside the trust
- 3SECURE Act changed rules - most non-spouse beneficiaries need 10-year distribution
- 4Trust must be "see-through" to use beneficiary life expectancy
- 5Accumulation trusts may face compressed trust tax brackets
- 6Conduit trusts provide less asset protection
- 7Consult estate attorney for trust design
Why Name a Trust as IRA Beneficiary?
Naming a trust as IRA beneficiary provides control over how and when beneficiaries receive inherited IRA assets.
- **Asset protection**: Shield IRA from beneficiary's creditors
- **Spendthrift protection**: Prevent beneficiary from blowing inheritance
- **Special needs**: Preserve government benefits eligibility
- **Multiple beneficiaries**: Control distribution among several people
- **Minor beneficiaries**: Manage assets until they're mature
See-Through Trust Requirement
The trust must be a "see-through" or "look-through" trust to use beneficiary life expectancy for RMDs. Otherwise, faster distribution rules apply.
Conduit Trusts
A conduit trust requires that all IRA distributions be immediately passed through to the beneficiary.
- **Required distribution**: All RMDs pass to beneficiary immediately
- **No accumulation**: Trust cannot retain IRA distributions
- **Look-through OK**: Uses oldest beneficiary's life expectancy
- **Less protection**: Assets in beneficiary's hands once distributed
- **Tax efficiency**: Avoids compressed trust tax brackets
Conduit Example
IRA requires $50,000 RMD. Conduit trust receives $50,000, immediately distributes to beneficiary. Beneficiary pays tax at their rate.
Accumulation Trusts
An accumulation trust can retain IRA distributions inside the trust rather than distributing to beneficiaries.
- **Discretionary**: Trustee decides whether to distribute or retain
- **Asset protection**: Assets stay protected in trust
- **Tax cost**: Trust tax brackets reach 37% at ~$14,450 (2024)
- **Complexity**: Requires careful drafting
- **SECURE Act caution**: May cause all 10-year distribution to be taxed at trust rates
Trust Tax Brackets
Trusts hit the 37% bracket at only ~$14,450 of income. Accumulating large IRA distributions can be very tax-inefficient.
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SECURE Act Impact on IRA Trusts
The SECURE Act of 2019 eliminated stretch IRAs for most non-spouse beneficiaries, dramatically impacting trust planning.
- **10-year rule**: Most non-spouse beneficiaries must empty IRA within 10 years
- **Conduit concern**: Large year-10 distribution passes to beneficiary (less protection)
- **Accumulation concern**: May cause all of year-10 to be taxed at trust rates
- **Eligible designated beneficiaries**: Spouse, minor children, disabled, chronically ill, and those within 10 years of decedent's age still get stretch
- **Planning required**: Trusts drafted before SECURE may need updating
How to Choose: Conduit vs Accumulation
The right choice depends on your goals and beneficiaries.
| Factor | Conduit Better | Accumulation Better |
|---|---|---|
| Tax efficiency | ✅ | |
| Asset protection | ✅ | |
| Spendthrift beneficiary | ✅ | |
| Special needs | ✅ | |
| Simple administration | ✅ | |
| Minor beneficiaries | ✅ |
Gold IRA Inheritance Planning
Gold IRAs follow the same trust rules as traditional IRAs. Physical gold can be an excellent asset for generational wealth transfer.
- Gold IRA can name trust as beneficiary
- Same conduit vs accumulation considerations apply
- Physical gold provides inflation protection for heirs
- Gold may appreciate during 10-year distribution period
- Consider Gold IRA as part of diversified legacy
- Augusta Precious Metals explains inheritance options
Frequently Asked Questions
1Can my existing trust receive my IRA?
Maybe. The trust must meet "see-through" requirements. Many older trusts weren't designed with IRA rules in mind. Have an estate attorney review it.
2Should I update my trust after the SECURE Act?
Likely yes if it was drafted before 2020. The 10-year rule significantly changes how conduit and accumulation trusts work.
3What if I just name beneficiaries directly?
That's often simpler and more tax-efficient. Trusts add complexity. Only use a trust if you need asset protection, spendthrift provisions, or control over distributions.
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