Peak Trust Company’s Peak Advantage Trusteed IRA is designed to offer clients the best flexibility and choice for using outside investment advisors and direction for future distributions.
The Peak Advantage Trusteed IRA has the following features that may be to a client’s advantage:
- The IRA owner can specify that their chosen accountant, attorney, or financial advisor will receive information regarding the account directly from Peak Trust Company.
- The IRA owner can specify how they want the beneficiary(ies) to receive payments from the account after death.
- The IRA owner can provide that their beneficiary will choose his or her own successor beneficiary(ies)for amounts remaining in the account at his or her death, or the IRA owner can specifically choose the successor beneficiary(ies).
- The IRA owner may choose to allow the trustee to make payments directly for health and support in the event of incapacity.
Trusteed IRA FAQ
What is a Trusteed IRA?
Under Tax code, both a Traditional Custodial Individual Retirement Account (IRA) and a Trusteed IRA are considered identical.
The difference between the two vehicles is in how they are structured. With a Traditional Custodial IRA, the account is controlled by a custodian. With a Trusteed IRA the account is controlled by a trustee.
A Traditional Custodial IRA and a Trusteed IRA both adhere to the same standard IRA tax rules, including:
- The ability to deduct IRA contributions when the requirements are met
- The taxability of distributions when received
- The potential for early withdrawal penalties prior to age 59 ½
- The obligation to take required minimum distributions (RMD) after age 72 (70½ if you turned 70½ before Jan 1, 2020)
Although the difference in structure might seem like a minor nuance, since everything else is the same, it makes a huge difference both during the life of the IRA owner, and more importantly after they are gone.
What are the responsibilities of a custodian vs. trustee?
With a typical IRA, the duties of the financial institution custodian are limited to:
- Holding the account assets
- Keeping track of deposits, distributions, and investment changes
- Reporting to the IRA owner regarding the IRA investments
- Filing required tax reports with the IRS
With a trusteed IRA, in addition to all same duties of a custodian, Peak Trust Company as trustee is also responsible for:
- Distributing funds for the benefit of the IRA owner, (when the trust has been set up this way by the owner). This might be requested if the IRA owner is incapacitated and wants the trustee to pay their bills. An IRA custodian cannot do this.
- Carrying out the IRA owner’s instructions after the IRA owner’s death, restricting the rate at which the beneficiaries receive access to the funds. An IRA custodian cannot do this — beneficiaries of a custodial IRA have unlimited access to the inherited account.
- Paying out a required minimum distribution (RMD) each year after the owner’s death, and also (in the case of a traditional IRA) during the IRA owner’s life after age 72 (70½ if you turned 70½ before Jan 1, 2020). Peak Trust Company will compute and pay out the RMD each year as part of its duties. A custodian does not do this, leaving the IRA owner vulnerable to the excise tax when illness or any mishap causes failure to take the RMD.
Is a Trusteed IRA right for me?
A Trusteed IRA is a versatile estate planning option, because it combines the control, longevity, and asset protection advantages of a trust, with the tax-deferral benefits of an IRA.
The Peak Advantage Trusteed IRA, may be a good choice for you if:
- You have a blended family, where you want to provide for your current spouse, while also making sure that your remaining IRA assets pass to your children from a previous marriage.
- You have concerns about heirs’ readiness to inherit wealth. A trusteed IRA can help in this instance, especially if you are worried about children who may struggle with dependencies, or who aren’t yet financially responsible. You can restrict distributions, beyond those required by the IRS, by specifying contingencies upon the beneficiary reaching specific milestones, such as completion of college, reaching a certain age, or completing rehabilitation programs.
- You are concerned about IRA management in the event of incapacity.
- You have a larger IRA, and want the benefit of the historic established trust structure. Custodial accounts may not be clear on which state law governs the account in the case of post-death disputes. It is relatively easy to establish the applicable state law in the case of a trust.
- You want an additional layer of protection from creditors a Trusteed IRA can help. An IRA has creditor protection under federal law, and also under many states’ laws, regardless of whether it is a custodial account or a trust. But, if the custodial IRA loses its tax status (which creditors seek to attach for just this reason), it loses those protections. A trusteed IRA is still a trust; even if its tax status as an IRA is successfully attached, and trust status will typically afford an additional layer of protection against creditors.
- You want to extend the tax-deferral of a traditional IRA or any tax-free earnings accumulation of a Roth IRA to benefit children, grandchildren or other heirs.
- You want to preserve continuity of IRA management during lifetime and after death.
- Have a non-U.S. citizen spouse.
- Would like to have the freedom and ability to continue working with the trusted financial advisor of your choosing.
The Trusteed IRA structure allows you to meet all of these needs and others as well.
How do I set up my Peak Advantage Trusteed IRA?
To set up your Peak Advantage Trusteed IRA contact our office at 1-888-544-6775.