Living trust as IRA secondary beneficiary

That's what we've done. Spouse first, then children, then trust.

Dave

Can a trust own an IRA? I thought an IRA can only be owned by an individual.

A trust cannot own an IRA, but a trust can be a beneficiary of an IRA. If the trust inherits the IRA, then the IRA would have to be distributed. But that occurs only when all of the named human beneficiaries are deceased.

Dave

So instead of the trust, could one name the grandchildren?

The motivation would be to keep the funds in an IRA as long as possible, deferring taxes.

When I inherited my mother's IRA I kept it in a "Beneficiary IRA". I have to take Recommended Minimum Distributions every year (this year was a recession exception). It's like the reciprocol of your life expectancy. If you have a life expectancy of 20 years left, you have to take out 5%. This IRS is very interested in money getting taxed.

Were you not able to put the IRA into a stretch IRA?

I believe my mother's IRA was considered to be a Stretch IRA. When I inherited it, it became a Beneficiary IRA. My personal IRA could become a Stretch IRA, but this is different money than the IRA I inherited. Again, the IRS wants money to be taxed and not deferred indefinitely. The penalty for failing to take an RMD can be as much as 50%. Always consult an accountant for reliable information about your particular situation. Tax code is almost always complicated.

That *is* using it as a "stretch" IRA. There's no actual account called a "stretch IRA". You won't find it on your brokerage account forms, etc. What there is, however, is an _inherited_ IRA and by careful selection of the beneficiary, and management of the required distributions from an IRA, one may "stretch" out the period of RMDs thus maximizing the time money spends in the IRA growing tax-deferred.

The "stretch" part is when the beneficiary is significantly younger than the deceased. Instead of distributing the whole IRA balance immediately or within the 5yr period (which is sometimes required for certain situations), the distributions are taken over the much longer life expectancy of the young beneficiary - and thus the RMDs are much smaller and the IRA is thus stretched to a much longer period of tax-deferred growth than would have otherwise been possible.

The rules for this get messier if the beneficiary is not an individual, and there are some variations, particularly for dealing with the difference between a spouse inheriting an IRA vs. a non-spouse, and if the deceased had already started taking RMDs before his death or not.

See IRS Pub 590 for details in the RMD section.

My wife and I have a joint living trust. May I name this joint trust as secondary beneficiary of my IRA?

You can, but it has certain implications which are not necessarily what you want. It certainly makes it more difficult for the ultimate beneficiaries of the assets to stretch out the RMDs. In order for it to stretch out according to the life expectancy of the beneficiaries, the rules are more complex, and it's much more likely that the IRA will have to be distributed according to the 5yr rule or according to your, rather than your beneficiary's life expectancy. Again, see pub 590.