Retirement is inevitable—sooner or later, you will have to decide for a time when you are no longer able to earn. If you want to keep taking care of your needs without relying on others, you need to have a comprehensive estate plan in place that manages your funds in the best possible way. Some people decide to do this by setting up a revocable trust in NYC.
A trust is an agreement between two parties to manage the estate for a third-person—a ‘living’ trust is a subcategory that allows the benefactor to change or modify the contents of a trust at any given time. Combined, these two qualities of the trust work out quite well for certain situations, but retirement funds are a different story.
401K
If it is offered by your employer, your retirement fund structure and planning depends completely on the company’s policies. The 401k, for instance, is the most commonly offered retirement account at workplaces. Every month, automatic contributions are made to a tax-exempted account, where the funds accumulate over the years.
The catch is that you will not be able to withdraw this money before retirement. If you remove it before you hit 59 and a half, there could be a 10% fine. Now, if you choose to transfer your 401k into a trust fund, it will still count as a withdrawal, causing you monetary damage in taxes.
IRA
However, there are some kinds of retirement accounts that you set up for yourself. The IRA, or individual retirement account, is a low-taxed getaway. It lets you invest in mutual funds, bonds, stocks, anything at all, and doesn’t tax you until the annual $6,000 limit is reached. It is not possible to put your IRA in a revocable trust in NYC while you are alive. But if you want, you can assign a trust as a beneficiary in the case of your demise and make future decisions for its proper handling.
These two types of retirement funds have several variations in the form of Roth 401K, Roth IRA, Simple and SEP IRA—but the basic information we offered more or less remains the same.
The Advantages of Naming a Trust as a Beneficiary
So in what case should you consider naming a trust a beneficiary of a revocable trust in NYC? Well, a trust can serve you well if the person you are naming as the owner of the trust is a minor or has special needs. Moreover, if you worry that a certain beneficiary is not capable of being responsible with the money when they receive it, you can also choose to lock it in a trust.
Your beneficiary will receive complete ownership of the trust based on whatever conditions you set. For instance, you can put down a condition allowing the transfer of estate when the recipient is 21 years old, or a holder of a university degree. You can ask your estate planning attorney the limitations to these clauses.Disadvantage: Required Minimum Distribution Payouts
If your situation is similar to what we discussed, you may be ready to consider a revocable trust in NYC as the beneficiary of your retirement fund. Before you take further steps, you should know about the minimum distribution payouts.
If your trust has multiple beneficiaries, the required payout will be calculated based on the oldest member’s life expectancy. This significantly lowers the deferral potential of these funds as compared to naming individual beneficiaries. However, if you are going to be naming a single person as the beneficiary of your trust, the RMD will not matter as much. If this seems too complicated, we suggest you speak with your estate planning attorney who is likely to be well-versed in these matters.Contingent Beneficiary
If you have decided to place your IRA or 401k in a trust for the future benefit of your spouse, children, or other loved ones, you should also consider adding a contingent beneficiary. The primary beneficiary will receive the contents of the trust upon your death; but if they predecease you, the trust will have to go through appropriate probate being liable for estate tax. A contingent beneficiary helps you avoid such a situation by serving as a ‘backup’ beneficiary.Key Takeaways
We’ll give you a simple version if you are too confused by the legal jargon: you should only consider putting your retirement fund in a trust for personal grounds that we mentioned before. For instance, if the beneficiary is likely to be a minor at the time of receipt or if you are worried that they will spend the money all at once—these are good enough reasons to think of setting up a trust.
To make sure you have understood all the implications thoroughly, get in touch with an experienced attorney who can eliminate risks and other dangers. Your retirement fund is your entire life’s saving, so take care of it as cautiously as possible.
