If you want to leave your individual retirement account (IRA) assets to your child, it can be very simple to do so.
You just need to designate your child as the beneficiary to your individual retirement account, and the assets will be directly transferred to them upon your passing.
But this may not be a great idea in some cases. For example, your child may be a minor, disabled, or a financially irresponsible adult. In such cases, a lump sum transfer may not be ideal.
Additionally, a direct transfer offers no asset protection. So the individual retirement account assets may be open to your child’s creditors, lawyers, or an ex-spouse.
Naming a trust as the beneficiary can offer you more control over how individual retirement account assets are distributed. But this method comes with much complexity, high costs, and potential tax disadvantages.
So it’s important to fully understand both options.
When a Direct Transfer Makes Sense
Passing on your individual retirement account to your child directly could make sense if your child is a financially stable adult who’s not facing high-interest debt or involved in lawsuits or divorces.
But there could still be some drawbacks.
Under current law, most non-spouse beneficiaries must withdraw the entire account within 10 years of the death of the original account owner. And in the case of inherited traditional individual retirement accounts, those withdrawals would be counted as taxable income. And if large enough, those withdrawals may push your child into a higher tax bracket. This can be especially worrisome if your children inherit your IRA during their peak earning years or when they’re already in a high-income position.
There are exceptions to the 10-year rule that apply to eligible designated beneficiaries. These include the following.
-
A minor child
-
Disabled or chronically ill individual
-
An individual who is not more than ten years younger than the account owner
But keep in mind that once the minor reaches the applicable age of majority, the 10-year rule typically kicks in.
When a Trust Holds an IRA
You can name a trust as the beneficiary of your IRA for the benefit of your child. And this can give you control over how its assets are managed and distributed after your death.
But there can be some major tax implications. In the case of traditional individual retirement accounts, distributions are treated as taxable income. So if the trust holds those distributions instead of passing them onto a beneficiary, the trust may owe income taxes.
Moreover, trust tax rate structures are different than they are for individuals. Overall, a trust can reach the highest tax rate under much lower incomes than for individuals.
For 2026, the 37 percent income tax bracket for trusts opens at just over $16,000. For individuals filing as single, the 37 percent tax bracket starts at more than $640,600.
So suppose your trust inherits your individual retirement account (IRA). The account then makes a taxable distribution to the trust, which holds it instead of passing it on directly to your child. It may be taxed at the highest trust federal income tax rate. Over time, a lot can be lost to taxes.
And state tax may come into play depending on where the trust is administered, where the beneficiary lives, and where the income is earned.
The Bottom Line
Simply leaving your individual retirement account to your child directly makes sense when your child is a financially responsible adult without worrisome debt or litigation issues. But in other cases, you may want more control over how assets are distributed. A trust can come in handy here. But having a trust hold and manage an individual retirement account can be an extremely complicated task. And it can blow up in your face if not carried out correctly. That’s why it’s crucial to have the trust drafted by a qualified estate-planning attorney familiar with retirement assets. Before deciding on which route to take, you should seek the guidance of qualified financial, tax, and estate planning professionals.
The Epoch Times copyright © 2026. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
