It’s simple and, when you die, the funds in your account automatically pass to your beneficiaries. Your heirs then have the option to stretch their required minimum distributions (RMD) over their lifetime or simply cash out and pay taxes currently.
Just so, what is the downside of naming a trust as the beneficiary of a retirement plan?
The primary disadvantage of naming a trust as beneficiary is that the retirement plan’s assets will be subjected to required minimum distribution payouts, which are calculated based on the life expectancy of the oldest beneficiary.
Correspondingly, is a retirement trust taxable? IRA distributions are considered taxable income and as such are taxed to the trust. The maximum tax rate for trusts is 39.6% and is reached with only $12,400 in taxable income. However, if the trust distributes any portion of its income, that income is taxed directly to the beneficiary of the trust.