What Everyone Should Know About IRA Trusts

For most people, thinking about retiring is exciting. After years and years of hard work, you are finally able to spend your days relaxing and doing whatever you want. Without working, however, you no longer have a traditional income. This is where an individual retirement account (IRA) comes in handy. Part of the federal taxes you pay through your paycheck does go into Social Security so that you can receive income from after retirement, but for many people this is not enough income to sustain their lifestyle.

What is an IRA?

An IRA is a retirement savings account that was created in 1974 through the Employee Retirement Income Security Act, or ERISA. An IRA gives workers a way to save for retirement on their own, outside of Social Security or employer pension plans. During retirement, an individual is then able to receive income payments from the IRA. An IRA is a type of tax deferred retirement savings to give retirees more financial freedom after years of hard work.

Naming a Beneficiary

Given that IRA stands for individual retirement account, it is logical that only individuals can be the owners of an IRA. IRAs can not be owned by two individuals. While an IRA is meant to be a vessel for individuals to have more income during retirement, a trust can also be established using an IRA to name a beneficiary (or beneficiaries) to the IRA when the owner is deceased.

The owner of the IRA names a beneficiary and can dictate exactly how much money will be disbursed each month. In fact, the owner of an IRA can also dictate whether there are other criteria that a beneficiary must meet before he or she is able to receive the disbursement. This is ideal for those that want to stretch the value of an IRA for beneficiaries.

Benefits of an IRA Trust

There are many benefits to designating a beneficiary to your IRA and thereby making it a trust. The following are benefits of an IRA trust:

Stretch the Value of Your Assets: As mentioned above, having control of the disbursement of the IRA can ensure that the assets in the trust last as long as you want them to. If you want the beneficiaries to receive payments for five, 10, 15, or however many years following your death, you are able to do that.
Save the Beneficiaries from Themselves: Receiving an inheritance can tempt an individual to spend everything at once. They might get caught up in the excitement of having a lump sum of money. An IRA trust account allows the trust owner to ensure that beneficiaries are not tempted to spend their inheritance at once.

If you have questions about an IRA trust, appointing a beneficiary, or retirement planning generally, an estate planning attorney can help you. The knowledgeable estate planning attorney at the Law Offices of Kris Mukherji is here to help you with your retirement planning needs. We know that planning for retirement can be stressful, but Attorney Mukherji is dedicated to making it as smooth a process as possible. Contact us today to set you and your beneficiaries up for success.