Utah Retirement Trusts
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Utah Retirement Trusts
Ensure Retirement Assets Stay in the Family
Qualified Retirement Accounts in a Nutshell
Qualified Retirement Accounts such as IRA and 401(k) accounts are tax-deferred, meaning that no taxes are paid when you contribute to the account. Your taxable income is reduced by the amount of the contribution the year it is invested. Furthermore, the money grows in the Retirement Account tax free for the length of time it remains in the account. However, when it is withdrawn the government taxes the distribution as income. For reference, Taxes in the amount 30 percent of withdrawals are not unreasonable. The government has a system in place to make sure it gets paid its taxes by forcing required minimum distributions generally when a person reaches 70 and a half years old.
Retirement Accounts and Standard Trusts
The conventional norm for retirement accounts such as IRA and 401(k) accounts is to leave these to your spouse and then descendants as inherited retirement accounts. In fact unless a trust has the appropriate provisions, leaving retirement accounts to a standard living trust can result in a big surprise tax bill to your descendants from the IRS.
When an individual inherits a retirement account, the payout schedule is adjusted to that beneficiary or beneficiaries’ life expectancy. In plain English this means that your descendants will not have to take distributions from the retirement account until they are in their retirement years. However, when the beneficiary of a retirement account is a living trust or other entity, payout is not stretched based on a life expectancy but instead is required to pay out over just few years. Distributions from retirement accounts count as ordinary income and are taxed as such. Thus, if a beneficiary is still working and is forced to take a distribution that should have been held until after retirement, much of the distributed money may be lost to income taxes.
Utah Retirement Trust Can Protect Funds and Skip Extra Taxes
Unlike standard Trusts, a Utah Retirement Trust will contain language that allows funds to be held for descendants based on their life expectancy so you get the benefit of protecting funds in trust without the onerous tax burden of having these funds distributed before your descendants are ready and retired.
When Would I Use a Utah Retirement Trust?
Qualified Retirement Accounts such an and IRA or 401(k) have certain legal protections from creditors and bankruptcy. In Clark v. Ramaker, the United State Supreme Court held that these legal protections do not extend to inherited retirement accounts. So if you have beneficiaries who are insolvent or deep in debt, have serious medical concerns or have their own children with medical problems, there may be risk that your retirement accounts could wind up in the hands of a beneficiary’s creditors. Another common concern is that a child will not be able to manage the fund correctly and waste it with early withdrawals. We also see a Utah Retirement Trust used for at risk beneficiaries such as those struggling with addiction, for children and adults with special needs. The Utah Retirement Trust can protect funds for future generations without falling for the IRS Tax trap.
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