Retirement Plan Trusts

Historically, most beneficiaries of retirement plans withdraw all of the retirement benefits within the first year of the plan member’s death. By withdrawing the funds immediately, the beneficiary will be taxed immediately and will lose the ability to defer income over his or her lifetime.

In most instances, the plan member will name primary and contingent beneficiaries directly on the beneficiary designation form. Upon the plan member’s death, the named beneficiaries will have the ability to do a rollover (for surviving spouses only), open an inherited IRA account, or withdraw the plan funds.

By creating a Retirement Plan Trust, you can prohibit the beneficiary from withdrawing the benefits and still maintain the “stretch-out” tax deferral that make retirement plans so effective for income tax purposes. If the Retirement Plan Trust is structured properly, the required minimum distributions will be determined over the beneficiary’s lifetime and can continue to compound for many years income-tax deferred.

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