You generally do not put your IRA or your 401(k) into your living trust while you are alive. The decision that matters is who you name on the beneficiary form, and naming your trust is a tax and legal decision for your attorney or CPA. (IRS 401(k) plan qualification requirements)
Your trust is for the deed to your house, your checking account, and the other things you move into it. Retirement accounts sit outside that list. A 401(k) plan has to say that its benefits cannot be assigned or alienated, and the IRS describes your IRA as an individual retirement account or an annuity, with an annuity issued in your name as the owner (IRS 401(k) plan qualification requirements, IRS Publication 590-A). So there is no retitling to do. There is a form to fill out and a name to pick. This guide is educational, not legal or tax advice. Work with attorneys who do estate planning and a CPA for decisions about your trust.
Should I put my IRA in my living trust?
Short answer, no, not as a funding step. Funding your trust means moving ownership of things into it. The deed to your house changes. The name on your checking account changes. Retirement accounts do not work that way.
Your 401(k) is money in your employer's plan, and the plan has to say that its benefits cannot be assigned or alienated, so the account cannot be handed over to your trust while you are alive (IRS 401(k) plan qualification requirements). Your IRA is your own retirement account. The IRS says you can open a traditional IRA when you have taxable compensation, that it can be an individual retirement account or an annuity, and that an individual retirement annuity must be issued in your name as the owner (IRS Publication 590-A).
That is why your attorney looks at retirement accounts on a different list from the deed and the bank. The IRS says the owner of a retirement account designates the beneficiary under procedures established by the plan, and some plans require a specific beneficiary under the terms of the plan, such as a spouse or a child (IRS retirement topics on beneficiaries). The trust does not take the account. You name someone on a form.
Bring your IRA and 401(k) beneficiary forms to the same meeting where you review the deed, and ask your attorney who should be named on each one. When the names on the forms match the names in your trust, there is nothing for your family to puzzle over later.
Should my trust be the beneficiary of my 401(k)?
The 401(k) is your employer's plan, and the plan's own rules come first. If your 401(k) sits in a profit-sharing plan, the plan generally pays your surviving spouse the full vested account balance, or pays another beneficiary if your spouse consents or if there is no surviving spouse (IRS Publication 560).
Most plans also ask a married participant to get their spouse's written consent to change beneficiaries, and to change the form in which the plan pays out benefits (IRS retirement topics on getting married and having children). Your spouse signs that consent with you. It is not a form you fill out alone, and it is not a form you can skip by mailing in a new beneficiary page.
Skipping that conversation is where the money gets expensive. Naming your trust changes who the plan has to pay and how the money comes out afterward, and the IRS rules for a trust beneficiary are set out in Publication 590-B for IRAs, in enough detail that the answer for your plan is a decision to make with your attorney or CPA (IRS Publication 590-B). Do not sign a form that names your trust because somebody else did the same thing.
What happens if I name my trust as my IRA beneficiary?
Here is the rule that surprises people. A trust cannot be a designated beneficiary, even when it is named on the form (IRS Publication 590-B). The money still goes to the name on the form. What changes is who the IRS treats as the beneficiary.
If the trust is valid under state law, or would be but for having no property in it yet, and the trust is irrevocable or becomes irrevocable by its terms when you pass, then the beneficiaries of that trust can be treated as having been designated beneficiaries. Each beneficiary has to qualify, the trust has to show what each one is entitled to, and the trustee has to give the custodian the documents the custodian asks for (IRS Publication 590-B).
When the trust does not meet those rules, the account is paid out under the 5-year or 10-year rule instead of as a lifetime payment to one person (IRS Publication 590-B). That difference in the tax rules is the reason to talk with your CPA before you sign anything, and it is also paperwork you do not do yourself. The trustee of the trust, not you, is the one who deals with the custodian and supplies the documents it requests (IRS Publication 590-B).
Who should be the beneficiary of my retirement account?
Nobody can answer that one for you. Your attorney and your CPA can show you what each choice does to the taxes and to your family, and then you decide with them. A few things are worth having in front of you when you do.
- Your spouse. If your 401(k) sits in a profit-sharing plan, the plan generally pays your surviving spouse the full vested account balance unless your spouse consents to another name (IRS Publication 560).
- What the plan requires. Some plans require a specific beneficiary under the terms of the plan, such as a spouse or a child (IRS retirement topics on beneficiaries).
- A backup. A form with one name on it and no second choice leaves a gap. Name who goes second before you need to know.
Keep the answers in one place. When the form and the trust say the same thing, your family is not left working out which one wins. The trust funding checklist has a line for retirement accounts, and working with a CPA on your trust covers the tax side of the same conversation.
Do I need to change my beneficiary forms after signing a trust?
Yes, at least check them. Signing a trust does not touch a beneficiary form you signed years ago, and it does not change what your will says. The IRS is plain about the reason: a retirement plan can only pay benefits to the beneficiaries named on the plan's form (IRS retirement topics on getting married and having children).
That one rule is why the form outranks your trust and your will. The plan pays the name on the form, so a form that still names your uncle from 2011 sends the money to your uncle, whatever your trust says (IRS retirement topics on getting married and having children).
So check the forms once your trust is signed, and again after a marriage, a divorce, a birth, or the passing of anyone you named. Most plans want the written consent of a spouse before you change beneficiaries (IRS retirement topics on getting married and having children). Get the consent at the same time you get the new form.
How do I check my beneficiary forms?
Start with the plan administrator for the 401(k) and the custodian for the IRA. The IRS says the owner designates the beneficiary under procedures established by the plan, so the form comes from the plan and not from a folder at your attorney's office (IRS retirement topics on beneficiaries). For an IRA, the IRS tells you to review the plan documents or talk to the IRA custodian or trustee (IRS Publication 590-B).
Ask each of them for two things.
- The beneficiary form currently on file. Ask for a copy of the current designation, including any backup beneficiary.
- The steps to update it. To change a 401(k) designation, the IRS says to contact the employer or plan administrator, ask for the change of beneficiary forms, complete them, and submit the signed forms (IRS retirement topics on getting married and having children).
Then compare the names with your trust. Look for your spouse's name, your children's names, and any name spelled differently from the way it appears in your trust papers. Save the confirmation each plan sends you with your trust papers, and write down the date you checked. The annual trust review checklist has a spot for that date, and trust mistakes after signing covers the other gaps people find at this stage.
TrustHelm works alongside your family's attorney to keep your beneficiary forms, plan confirmations, and follow-up steps together. Start your checklist.
Common questions
Here are the short answers to keep handy when you call the plan or the custodian.
Can I put my IRA in my living trust?
Generally, no, not as a funding step. A 401(k) plan has to say that its benefits cannot be assigned or alienated, and your IRA is an account or an annuity that you open yourself, so neither one gets retitled into your trust. What you decide instead is who you name on the beneficiary form, and naming your trust is a tax and legal decision for your attorney or CPA (IRS 401(k) plan qualification requirements, IRS Publication 590-A).
Should my trust be the beneficiary of my 401(k)?
That is a decision to make with your attorney or CPA, because it changes who the plan has to pay. If your 401(k) sits in a profit-sharing plan, the plan generally pays your surviving spouse the full vested account balance, or another beneficiary if your spouse consents. Most plans ask for your spouse's written consent before you change beneficiaries at all (IRS Publication 560, IRS retirement topics on getting married and having children).
What happens if I name my trust as my IRA beneficiary?
A trust cannot be a designated beneficiary, even when it is named on the form. If the trust is valid under state law, becomes irrevocable when you pass, and names beneficiaries who qualify, then those beneficiaries are treated as having been designated beneficiaries. If it does not meet those rules, the account is paid out under the 5-year or 10-year rule instead (IRS Publication 590-B).
Who should be the beneficiary of my retirement account?
Your attorney and your CPA can show you what each choice does, and then your family and your own plans decide. For a 401(k) in a profit-sharing plan, your spouse is the person the plan pays first unless your spouse consents to another name. Name a backup too, so the form does not leave a gap (IRS Publication 560, IRS retirement topics on beneficiaries).
Do I need to change my beneficiary forms after signing a trust?
Check them, and change them when the names do not match what you decided. Signing a trust does not touch a beneficiary form, and a retirement plan can only pay the beneficiaries named on it. Ask the plan administrator or the IRA custodian for the form on file, then compare the names with your trust (IRS retirement topics on getting married and having children).