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Can I name my living trust as a beneficiary of my 401k?

Jun 26, 2012 by Alan from Colorado Springs, CO in  |  Flag
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The simple answer is YES, typically you can.

However, please consult with your attorney on the specifics of doing so. In some states, the trust may not be treated as an "individual" and might cause the 401(k) to be "force distributed" either immediately, or over a 5-year period. I do know that in Florida, laws have been specifically written so that trusts ARE treated as individuals and therefore can "stretch" the 401(k) - meaning that the beneficiaries of the trust can take only the required withdrawals from the 401(k) (now in the trust) in order to satisfy the required minimum distribution requirements of the IRS code. But I do not know how other states treat inherited qualified money in trusts.

The most common beneficiary structure we see is: Primary Beneficiary: Spouse Contingent Beneficiary: Trust

This gives the spouse the opportunity to "disclaim" the 401(k) and have it go into the trust (of which he/she is a likely beneficiary anyway) if it makes sense during postmortem planning.

But - since you already have a Trust - you already have an attorney. Please call your attorney and get his advice on the best structure for your situation. There are several instances I can think of which may require that he modify your trust, or create what are called "subtrusts" in the event that your trust beneficiaries are of significantly varying ages.

Comment   |  Flag   |  Jun 26, 2012 from Jacksonville, FL

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Herbert N Glass Level 18

Yes, you can name your living trust as the beneficiary of a 401(k) plan account. However, if you do, you must be absolutely sure that the trust meets 100% of the requirements that a trust must meet to allow your beneficiaries to enjoy all of the tax advantages that they would enjoy if they were named outright.

Ask the attorney who wrote the trust for you if the language of the trust includes all that it should to allow you to accomplish everything you want for your beneficiaries. And, although I am sorry to have to mention this, you must make sure that the attorney understands your question and understands all the rules and laws that the trust must meet so that your beneficiaries have all the flexibility that they are supposed to have if the trust was written properly. This is critical and just one slip up could ruin the tax benefits that are available from a properly written trust.

When we set up a 401(k) plan for a company and speak at the enrollmet/education meeting for the participants, we normally suggest that the participants do not name a trust as a beneficiary until they have double checked everything I metioned above has been verified with the attorney that drafted their trust.

Comment   |  Flag   |  Jun 26, 2012 from Franklin, MI

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