Written by Phoebe Stone, JD, MA (Bioethics)
In the United States, an enormous amount of wealth is held in retirement assets. In fact, as of September 2025, more than $48 trillion is held in retirement accounts, and retirement assets account for more than one-third of all household financial assets. Given these statistics, trusts and estates practitioners and other professionals must be prepared to advise and assist their clients in planning for their retirement savings accounts.
INTRODUCTION
The general premise behind using retirement accounts to save for retirement is as follows: The plan participant (i.e., the individual who is saving for retirement) contributes funds to a retirement savings account, generally during their working and earning years (and perhaps their employer also contributes funds on the plan participant-employee’s behalf). The funds are invested and managed by the plan administrator, and the funds appreciate on a tax-advantaged basis. When the plan participant retires and is no longer earning wages from employment, these retirement savings are withdrawn in increments to provide an income stream that supports the now-retired plan participant in their golden years.
Sometimes, however, a plan participant dies before they exhaust their retirement savings (and, in some cases, a plan participant dies very prematurely, before they have even begun taking distributions from their retirement savings). In such circumstances, the remaining retirement assets can pass outside probate to a named beneficiary (or group of beneficiaries) selected by the plan participant. These beneficiaries are usually indicated on a beneficiary designation form, which is generally supplied and maintained by the plan administrator. The plan participant can name any primary and contingent beneficiaries they desire on the beneficiary designation form; common choices include an individual person (e.g., surviving spouse, adult children, other loved ones), the plan participant’s own estate, charities, and trusts.
The choice of beneficiary for retirement assets can be extremely significant in determining both (i) the income tax treatment of funds withdrawn from the inherited retirement assets and (ii) the length of time over which funds may be withdrawn from the inherited retirement account, which has been impacted by the Setting Every Community Up for Retirement Enhancement (SECURE) and SECURE 2.0 Acts. Using a standalone retirement trust to serve as beneficiary of retirement accounts can help ensure optimal treatment with regard to income taxation and length of time for distribution, as well as additional benefits, such as asset protection.
CHOICE OF BENEFICIARY AND TAXATION
Withdrawals from most forms of retirement accounts count as taxable income to the withdrawing party regardless of whether the plan participant or an inheriting beneficiary makes the withdrawal; the exception to this is a Roth account, because distributions from a Roth account are not subject to income taxation. The choice of beneficiary for a retirement asset will impact the income tax treatment of withdrawals from that account as follows . . .
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