Retirement Accounts (IRA, 401(k)) and Trusts: Never Retitle Them

Retirement accounts are where good intentions most often backfire. Retitling an IRA or 401(k) to a trust can be treated as withdrawing the whole account at once and paying tax on all of it. This article explains the right approach.

Why Can’t a Retirement Account Be Retitled to a Trust?

IRAs, 401(k)s, 403(b)s and similar accounts can legally be owned only by an individual. Changing the owner to a trust is generally treated for tax purposes as a full distribution: the entire balance becomes taxable income that year, and a penalty may apply if you are under the required age.

So How Do Retirement Accounts Work With a Trust?

Through the beneficiary designation form. The account always stays in your name; you decide only who receives it at your death.

Importantly, the beneficiary form overrides your will and trust. If your will says “everything to my children” but your IRA form still names your ex-wife, the money will usually go to your ex-wife.

Who Should the Beneficiary Be? Three Common Choices

1. Your spouse
A spouse can roll the account into their own IRA (a spousal rollover), which is the most flexible option and usually the first choice for married people.

2. Adult children, by name
Simple and direct. But a child can withdraw everything at once, and the money can be exposed to debts or divorce.

3. A trust
Worth considering when:
- A child is a minor;
- A child has special needs and receives government benefits;
- A child is not good with money, or faces marital or creditor risk;
- You are in a blended family and want to provide for your spouse while protecting children from a prior marriage;
- The account is large.

How Quickly Must Children Withdraw an Inherited IRA?

Under the SECURE Act, effective in 2020, most non-spouse beneficiaries must empty the account by the end of the tenth year after the owner’s death. If the owner had already begun required minimum distributions (RMDs), the beneficiary must also take annual distributions in years one through nine, and empty the account in year ten.

The following “eligible designated beneficiaries” get more favorable rules:
- A spouse;
- The owner’s minor children (until age 21, after which the 10-year rule applies);
- Disabled or chronically ill individuals;
- Anyone not more than 10 years younger than the owner (for example, a sibling).

Is Naming a Trust as Beneficiary a Disadvantage?

Not if it is properly designed. The trust must qualify as a “see-through trust,” so the tax rules can “look through” the trust to the individual beneficiaries. Two common designs:

Conduit trust: Whatever the trustee withdraws from the IRA passes straight out to the beneficiary. Simple, but offers less protection;
Accumulation trust: The trustee may keep withdrawals inside the trust. Stronger protection, but income retained in the trust is taxed at trust rates. In 2026, trust income over just $16,000 is taxed at the top 37% federal rate.

The choice depends on whether you care more about protection or taxes.

Can I Name “My Estate” as Beneficiary?

This is the least advisable option. The account goes through probate, and beneficiaries often must withdraw it faster, losing tax deferral.

How Do 401(k)s Differ From IRAs When Naming Beneficiaries?

401(k)s and other employer plans are governed by federal law (ERISA). If you are married, your spouse is the beneficiary by law unless your spouse consents in writing, witnessed by a notary or plan representative. IRAs generally have no such requirement.

Do These Rules Apply to Roth IRAs?

Non-spouse beneficiaries of a Roth IRA generally must also empty it within 10 years, but withdrawals are usually tax-free, and there are no annual minimums; the account simply has to be emptied by the end of year ten.

After a Divorce, Is My Ex-Spouse Automatically Removed?

New York law provides that after divorce, revocable arrangements in favor of a former spouse, including beneficiary designations, are revoked automatically to the extent permitted by law (EPTL §5-1.4). But 401(k)s and other ERISA plans generally pay whoever is named on the plan’s form (U.S. Supreme Court, Egelhoff v. Egelhoff, 532 U.S. 141 (2001)). Always update your forms yourself after a divorce.

Can a Retirement Account Go Into a Medicaid Asset Protection Trust?

Not directly; that would be treated as a full withdrawal. Under New York Medicaid rules, a retirement account in periodic payout status is generally not counted as an asset, but the payments count as income. How to handle it depends on your overall plan.

What Should I Watch for After Changing Jobs or Moving Accounts?

When you roll a 401(k) into an IRA or move an account to a new institution, the new account needs a new beneficiary form. The old form does not follow automatically.

The Bottom Line

The rule for retirement accounts fits in one sentence: don’t retitle; name your beneficiaries carefully. Whether that means your spouse, your children or a trust depends on your family and your taxes.

Attorney’s perspective

Retirement accounts are often a family’s largest liquid asset, and the beneficiary choice affects taxes for a decade or more. I weigh whether your spouse, your children or a trust should be the beneficiary, and if it is a trust, whether a conduit or accumulation design fits. These decisions are best made together with your accountant.

For advice about your own family’s situation, call +1 718-218-5805 or schedule a consultation. We meet clients in Flushing and Manhattan, in English or Chinese.

Series overview

This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. For advice about your situation, please contact us.

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