Why Choose Law Offices of Rozsa Gyene for IRA Trust Planning?
IRA Protection for Los Angeles & Santa Barbara Heirs
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019, fundamentally changed inherited IRA rules. Previously, non-spouse beneficiaries could "stretch" IRA distributions over their lifetime, potentially extending tax-deferred growth for decades. This made IRAs one of the best assets to inherit.
The SECURE Act eliminated the stretch IRA for most beneficiaries. Now, most non-spouse beneficiaries must withdraw all IRA funds within 10 years of the account owner's death. This can create massive tax bills, forcing beneficiaries to take large distributions during their peak earning years when they're already in high tax brackets. A $1 million inherited IRA could generate $370,000+ in income taxes if withdrawn quickly.
IRA trusts (also called retirement benefit trusts) are specialized trusts designed to be beneficiaries of IRAs, 401(k)s, and other retirement accounts. When properly structured as "see-through trusts," they qualify for the same distribution rules as individual beneficiaries while providing asset protection, creditor protection, divorce protection, and control over distributions to spendthrift or vulnerable beneficiaries.
Two main types exist: Conduit trusts automatically distribute all IRA distributions to beneficiaries immediately, providing no asset protection but ensuring optimal tax treatment. Accumulation trusts allow trustees to hold distributions in trust, providing maximum asset protection and control, but distributions held in trust are taxed at compressed trust tax rates (37% bracket starts at just $15,200 in 2024). We help you choose the right structure balancing tax efficiency with protection and control based on your unique situation and beneficiary needs.
The SECURE Act Changed Everything: The 10-Year Rule
The SECURE Act of 2019 (and SECURE 2.0 of 2022) eliminated the "Stretch IRA" for most non-spouse beneficiaries. Now, inherited IRAs must be fully distributed within 10 years—creating a potential income tax catastrophe for your heirs.
Maximum distribution period for most heirs
Top federal income tax bracket
California state income tax
Combined tax rate potential
Whether your retirement accounts are held at a family office in Montecito or a brokerage in Downtown Los Angeles, the elimination of the Stretch IRA means your heirs could face a 50%+ tax hit without proper planning. We design IRA trusts to minimize this burden.
⚠️ The $2 Million IRA Tax Trap: A Real Example
Consider a Pasadena family with a $2M IRA leaving assets to adult children:
❌ Without Planning (Year 10 "Bomb")
- Heir waits until Year 10 to withdraw
- $2M + growth = ~$2.8M withdrawal
- Pushed into highest tax brackets
- Federal tax: ~$1,000,000
- CA state tax: ~$370,000
- Total tax: ~$1,370,000 (49%)
✅ With Strategic Planning
- Structured distributions over 10 years
- Roth conversions during low-income years
- Charitable remainder trust options
- Bracket management strategies
- State tax planning (if heir relocates)
- Potential savings: $200,000-$400,000+
The difference between thoughtful IRA planning and ignoring the problem can be hundreds of thousands of dollars for your family.
Protect Your Retirement Legacy
Tax Minimization
Structure distributions strategically to minimize income taxes on inherited IRAs under the new 10-year rule, spreading income across multiple years.
Creditor Protection
Use accumulation trusts to protect inherited IRA funds from beneficiaries' creditors, lawsuits, bankruptcy, and financial predators.
Divorce Protection
Keep inherited IRA funds in trust to protect them from beneficiaries' divorcing spouses, ensuring assets stay in your bloodline.
Spendthrift Protection
Control distributions to beneficiaries with addiction, gambling problems, poor money management, or vulnerability to manipulation.
See-Through Compliance
Ensure your IRA trust meets all IRS requirements to qualify as a see-through trust, preventing forced immediate taxation of the entire account.
Optimal Beneficiary Designations
Coordinate IRA beneficiary designations with your overall estate plan, using proper titling and contingent beneficiaries to maximize flexibility.
Our IRA Trust Planning Process
Account Analysis
Review retirement accounts, values, and current beneficiary designations
Strategy Selection
Choose between conduit/accumulation trust based on protection vs. tax goals
Trust Drafting
Create see-through compliant IRA trust with proper distribution provisions
Beneficiary Updates
Update IRA beneficiary designations to name trust as beneficiary
Eligible Designated Beneficiaries (EDBs): Who Can Still "Stretch"
The SECURE Act preserved the Stretch IRA for five categories of "Eligible Designated Beneficiaries." If your heir qualifies, they can still stretch distributions over their lifetime:
1. Surviving Spouse
Can roll over to own IRA, treat as own, or remain as beneficiary. Most flexible options of any EDB.
2. Minor Children (of deceased)
Can stretch until age of majority (18-26 depending on state). Then 10-year rule kicks in. Only applies to children, not grandchildren.
3. Disabled Individuals
Must meet IRS definition of disability (unable to engage in substantial gainful activity). Can stretch for life.
4. Chronically Ill Individuals
Unable to perform 2+ activities of daily living, or requires substantial supervision due to cognitive impairment.
5. Individuals Not More Than 10 Years Younger
Siblings, partners, or others within 10 years of the deceased's age can stretch for life.
If you have a disabled or chronically ill beneficiary, we coordinate IRA planning with a Special Needs Trust to preserve both government benefits AND the stretch IRA advantage.
See-Through Trust Requirements: Making Your Trust "IRA-Friendly"
If you want to name a trust as your IRA beneficiary (for control, creditor protection, or special needs planning), the trust must meet strict IRS requirements to avoid the worst tax treatment:
✅ See-Through Trust Requirements
- Valid under state law
- Irrevocable at death (or becomes irrevocable)
- Identifiable beneficiaries by September 30 of year after death
- Trust documentation provided to IRA custodian by October 31
❌ Consequences of Failure
- No stretch—even for EDBs
- If owner died before RBD: 5-year rule
- If owner died after RBD: Ghost life expectancy
- Compressed taxable income
- Potential trust-level taxation at highest rates
Critical: Most living trusts drafted before 2020 do NOT meet see-through requirements. If your trust was drafted before the SECURE Act, it likely needs updating. Visit our Trust Administration Hub for fiduciary guidance.
Conduit Trust vs. Accumulation Trust: Which Is Right?
There are two types of see-through trusts for IRA planning, each with distinct advantages:
Our Approach: We analyze your family situation, beneficiaries' circumstances, and goals to determine which trust structure—or hybrid approach—best serves your objectives.
IRA Tax Minimization Strategies
Beyond trust design, there are several strategies to minimize the tax burden on your heirs:
Roth Conversions
Convert traditional IRA to Roth during your lifetime. You pay tax now at your rate; heirs receive tax-free distributions.
Charitable Remainder Trust
Name a CRT as beneficiary. Provides income stream to heirs, eventual gift to charity, and income tax deduction.
Qualified Charitable Distribution
If 70½+, donate up to $105,000/year directly from IRA to charity. Satisfies RMD without increasing taxable income.
Strategic Beneficiary Selection
Leave IRA to beneficiaries in lower tax brackets. Leave non-IRA assets to high-income heirs.
Life Insurance Replacement
Use IRA funds to pay premiums on life insurance. Death benefit replaces IRA value tax-free.
Bracket Management
Plan distributions to "fill up" lower tax brackets each year rather than lumping income. Avoid pushing heirs into 37% bracket.
📅 Required Minimum Distributions (RMDs): Know the Rules
RMD rules are complex and penalties for mistakes are severe (25% excise tax on amounts not distributed):
Owner's RMDs
- Age 73: RMDs begin (SECURE 2.0)
- Age 75: RMDs begin (starting 2033)
- First RMD: by April 1 of year after turning 73
- Roth IRAs: No RMDs during owner's lifetime
Inherited IRA RMDs (Non-EDB)
- 10-year rule: Must empty by end of Year 10
- Annual RMDs required: If owner died after RBD
- No annual RMDs if owner died before RBD
- Inherited Roth: 10-year rule, but tax-free
Fiduciary Alert: Missing RMD deadlines can result in personal liability. Our Trust Administration Hub provides guidance.
IRA Trust vs. Naming Beneficiaries Directly
Should you name a trust as IRA beneficiary, or name individuals directly? It depends on your goals:
Our Recommendation: Use an IRA trust when beneficiaries are minors, spendthrifts, have special needs, face creditor/divorce risks, or when you want control over distribution timing.
IRA Trust Planning for High-Net-Worth Families
We provide sophisticated IRA and retirement trust planning for families with significant retirement accounts throughout Southern California:
Los Angeles County
Pasadena • San Marino • La Cañada Flintridge • Arcadia • Beverly Hills • Brentwood • Pacific Palisades • Calabasas • Encino • Sherman Oaks • Glendale • Burbank
Santa Barbara County
Typical Client Profile
$1M+ in retirement accounts, adult children as primary beneficiaries, concerned about tax efficiency and asset protection for heirs.
Related Services: Living Trusts | Special Needs Trusts | Trust Administration | ILITs | Heggstad Petition
Frequently Asked Questions
Protect Your Retirement Assets
Don't lose your life savings to unnecessary taxes. Start planning your IRA trust today.
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