I have created my first ever trust and will account today but they said they recommend to not include any retirement account in my will / trust for the sakes of reducing taxes. Although I sort of vaguely understood it however my understanding that I got out of my session with the trust attorney was that I will have to deal with my IRA/401K separately outside the trust/will. I sort of finished designating benefiaries for all my retirement account however few questions remain. - if I die premately before the age of 65, how the beneficiaries will receive the funds in my retirement account? In that case, will they be taxed as if I started withdrawing before 65 which is ordinary tax + 10%? - Will beneficiary receive on lump sum or is there a way to distribute the smaller amount over time? Thanks.,
Not that simple-depends on who the beneficiary is. I suggest you read this. And if you have paid a tax professional to set up a trust, they are better suited to answer these questions. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
The rules have changed recently and I don't think the IRS site has been updated yet. It used to be that non-spouse beneficiaries had to take minimum distributions (penalty-free) spread out over their expected lifespan. Now it's 10 years. Google stretch IRAs and the SECURE act for more details.
Talk to your tax attorney on this. If your spouse is your beneficiary on retirement accounts, he/she can treat the assets as their own and deposit them into their own retirement acct rather than put them in a bene IRA. Could be beneficial or have tax implications depending on if they need/want to take an RMD
Non-spousal beneficiaries have to deplete the funds over 10 years. It used to be based on the remaining life expectancy of the beneficiary. In effect accelerating the collection of taxes that would have been paid over a longer period. So, it's a big deal if you are leaving it to younger person.
I haven't checked carefully, but this article suggests it's the same. It also explains some issues with putting a retirement account in a trust.