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Julie Garber

Should You Fund Your IRA or 401(k) into Your Revocable Trust?

By April 11, 2009

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This is a question that comes up frequently when I get to the funding stage of a trust with my clients. The answer is NO. If you attempt to retitle your IRA or 401(k) into the name of your Revocable Living Trust, hopefully the IRA custodian or 401(k) plan administrator will stop you in your tracks. Why? Because changing the owner of your IRA or 401(k) will be considered a withdrawal of 100% of the funds from your account, thereby causing 100% of the account to be taxed as part of your income in the year in which the owner is changed. And if you're under the age of 59 1/2, then you'll also have to pay a 10% penalty for early withdrawal of the funds.

Instead of changing the actual owner of your IRA or 401(k) to your Revocable Living Trust, you'll need to change the primary and secondary beneficiaries to coincide with your estate planning goals. At first glance this may appear to be a simple task, but depending on the size of your IRA or 401(k) and what your estate plan says, you'll need to work with your estate planning attorney to determine who you should name as your beneficiaries.

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