Can a Trust Own an IRA?

by Susan Reynolds

The Individual Retirement Account (IRA) is a personal account used for increasing money for retirement purposes. The advantage of an IRA is that it can be used to increase the balance of tax-free investment options. Since its purpose is to be an individual's account, a trust cannot be the owner of an IRA.

Acceptable IRA Holders

Anyone who earns income is able to establish and add money to an IRA. There are limits as to how much money you can add to an IRA during the year based on your income. Married couples may add to each others' accounts. Trusts, businesses or charities may not open IRAs, but small businesses may start a Simplified Employee Pension IRA for employees. The sole account holder, however, must be an individual.

IRA Beneficiaries

A trust may inherit the IRA, but cannot open it. A popular trust beneficiary is the family living trust. This type of trust must liquidate IRA assets and pay the taxes all at once. Another option is for the living beneficiaries to take control over the IRA in order to reduce taxes. They can distribute the IRA money over the course of five years or put the money into a beneficiary IRA instead.

IRA Custodians

The IRA custodian is also called the trustee. The responsibility of the IRA trustee is to make sure the account follows IRS regulations. You may not be the IRA custodian of your retirement account -- you must choose a certified financial institution like a firm or bank to keep records of distributions and contributions for IRS reporting. They also must report any prohibited IRA actions to the IRS.

IRS Trust

When the owner of an IRA dies, the IRA trust mandates that the account's beneficiary follow the required actions of rolling over the account or paying the taxes on it. The original owner of the IRA establishes the trust to ensure that the account is looked after properly. It is used to give the owner more control over what happens to the account upon his death. For example, an account holder may allocate the money to a certain family member for the express purpose of using the money for college costs.

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