Should I Put My Retirement Account Into A Trust?

If you're planning to leave your IRA to your children—especially through a trust—understanding the different options available and finding the best fit is critical for not only controlling your wealth but for taxes. There are two types of trusts that you can leave your IRA to: A conduit trust and an accumulation trust. Since the SECURE Act eliminated the "stretch IRA" for most non-spouse beneficiaries, both types of trusts now face the 10-year rule: the IRA must be fully withdrawn (and taxed) within 10 years of your death. But how those withdrawals are handled varies greatly depending on the trust structure.

A conduit trust requires any distributions from the IRA to pass directly to the beneficiaries. It’s simple and avoids the higher trust tax rates, but offers limited control—your heirs get the money, whether they are ready or not. Essentially, the trust allows for a trustee to determine how and when the beneficiaries will get their share of your retirement account, but it must all occur within ten years.

In contrast, an accumulation trust allows the trustee to retain those distributions in the trust, offering asset protection and controlled access (great for younger or financially inexperienced heirs), but at a cost: growth on the retained income inside of the trust is taxed again at much higher tax rates.

So, does either make sense? If your kids are financially mature, a conduit trust may be most efficient but you still must distribute all of the trust assets within ten years. However, if you want to shield the money or delay access—think divorce protection or a staggered inheritance to protect them from blowing it or incurring a legal obligation—an accumulation trust gives you more control, despite the tax hit. The best option depends on your specific goals, your beneficiaries' readiness, and how much control matters to you.