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If an individual owns a large IRA and lives in a state with an income tax, they should consider setting up a non-grantor trust in a state with no income tax. While this financial planning tactic may sound exotic, it’s common sense and can make a material difference in the individual’s life and beyond.


Placing the IRA in a non-grantor trust in a state with no income tax avoids state income taxes. That’s big! In addition, beneficiaries of the individual’s IRA would also benefit. Their spouse, children, and other IRA beneficiaries could expect to get more from their largesse after one has passed on.


Under the SECURE Act bill which is expected to be enacted before the end of 2019, the individual’s heirs would be required to distribute the IRA left to them within 10 years.


Naming one’s IRA beneficiary a non-grantor trust in a state with no income tax may allow their beneficiaries to avoid paying state income tax on the distributions from the IRA.


To be clear, income from the individual’s IRA could be free of state income tax by applying this strategy! A recent U.S. Supreme Court decision upheld the legal concept behind this strategy and out-of-state trusts are likely a device that retirees will hear about in the mainstream financial press in the months ahead. This is a fluid new area of legal and financial regulation and requires legal and tax advisors familiar with the reader’s personal situation.
Advisor Products Inc.'s Article Disclosure:
This article was written by a professional financial journalist for Legend Financial Advisors, Inc.®and is not intended as legal or investment advice.



Please Note:

1Legend is a Fee-Only Advisory Firm.  Fee-Only Means Legend Never Receives Any Commissions.  However, Legend Trades Securities on Behalf of the Client Through a Few Non-Related Institutional Custodians.  As a Result, the Client Often Pays a Small Fee for Mutual Fund Trades for Transactions (Also Known as a Trading Fee or Commission).  Again, Legend Never Receives any Portion of this Fee.

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