This is one of the most common estate planning questions. The answer matters more than most people think. Naming your trust as the beneficiary (the person or entity that gets the money) of a retirement account can protect your family. Or it can cost them big money in taxes. The outcome depends on how the trust is written and whether the beneficiaries qualify for exceptions under federal tax law.
What the SECURE Act Changed for Inherited IRAs
The SECURE Act of 2019 ended the "stretch IRA" for most non-spouse beneficiaries. Before the law changed, a beneficiary could spread required minimum distributions (RMDs) over their own life span. Withdrawals could stretch across decades. That kept the tax bill low each year.
Now, most non-spouse beneficiaries must empty the full account within 10 years of the IRA owner's death. That shorter window pushes more money into higher tax brackets faster. For inherited IRAs and inherited 401(k) accounts, the 10-year rule creates a real tax challenge.
Some beneficiaries are exempt. These are called eligible designated beneficiaries (EDBs). The list includes a surviving spouse, minor children of the account holder, disabled or chronically ill people, and those not more than 10 years younger than the IRA owner.
Why People Name a Trust as Beneficiary
There are good reasons to send retirement assets through a trust. Maybe a beneficiary is a minor. Maybe they have a disability or struggle with money. Maybe there is a blended family. A trust gives control over how and when the money goes out. Without a trust, a large IRA payout goes straight to the named person with no guard rails.
For traditional IRAs and other tax-deferred retirement assets, a trust's control can be valuable. But that control comes with tax trade-offs.
The Tax Risk of Getting It Wrong
When a trust is the named beneficiary, the IRS checks whether the trust qualifies as a "see-through" or "look-through" trust. A properly set up trust lets the IRS treat the trust beneficiaries as if they were named directly for payout purposes.
If the trust does not qualify as see-through, the full account may need to be emptied within five years. Trust-level income tax rates apply. And they are steep. For 2025, trusts hit the top 37% federal bracket at just $15,450 of taxable income. A person does not reach that rate until over $600,000. The gap is huge.
A properly set up trust must meet four IRS rules. It must be valid under state law. It must become irrevocable at the IRA owner's death. The beneficiaries must be clear. A copy must be given to the IRA custodian.
Eligible Designated Beneficiary (EDB) Considerations
If a trust beneficiary qualifies as an EDB, such as a disabled or chronically ill person, they may still stretch payouts over their life span. This is true even under the SECURE Act. That makes trusts especially useful for protecting beneficiaries with special needs.
But here is the catch. If the trust has more than one beneficiary and even one does not qualify as an EDB, the whole trust may fall under the 10-year rule. Careful drafting is key.
When a Trust Makes Sense and When It Does Not
If your beneficiaries are responsible adults with no special needs, naming them directly is usually simpler. It is also more tax-smart. Direct naming avoids trust-level tax brackets. It gives each person freedom to time their withdrawals.
If you need control over payouts because of age, disability, family dynamics, or creditor concerns, a well-built trust can be the right tool. The key phrase is "well-built." A trust not set up to meet IRS see-through rules can speed up taxes. It can wipe out the very benefits you were trying to create.
Talk to an estate planning attorney and a tax advisor before making this choice. The cost of getting it right is far less than the cost of getting it wrong.