Many retirees who have carefully built a traditional IRA name a trust as beneficiary to keep spendthrift heirs on a schedule, shield assets from creditors, or provide for a minor or special-needs child. Under the old stretch-IRA regime, the strategy worked cleanly. Under the SECURE Act's 10-year rule — now fully in effect after the IRS finalized its regulations — the same trust can accelerate a tax bill instead of postponing one. Understanding which type of trust you have, and how it interacts with the 10-year clock, is now a required piece of estate planning.
The See-Through Requirement
A trust cannot use an individual's life expectancy for retirement account distributions unless it qualifies as a "see-through" trust. Four conditions must be met: the trust is valid under state law, the trust is irrevocable or becomes irrevocable at the account owner's death, the trust's underlying beneficiaries are identifiable from the trust document, and required documentation is provided to the IRA custodian.
If those tests fail, the IRA is treated as if it were payable to a non-designated beneficiary. The account must generally be emptied within five years — a far worse outcome than the 10-year rule.
Conduit vs. Accumulation
See-through trusts come in two flavors, and they behave very differently under current rules.
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Conduit trust. Any distribution the trustee receives from the IRA must be paid out immediately to the trust beneficiary. The beneficiary reports the income and pays tax at individual rates. Under the SECURE Act, the entire IRA still has to leave the trust within 10 years, so the beneficiary ends up receiving — and being taxed on — the whole account by year 10.
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Accumulation trust. The trustee has discretion to retain distributions inside the trust rather than pass them through. This provides ongoing creditor protection and control but pushes any retained income into the trust's own tax return.
Why Accumulation Trusts Are Expensive in 2026
Trust income tax brackets are the most compressed in the code. For 2026, a trust hits the top 37% federal rate at just $16,000 of retained income. An individual filer does not reach 37% until taxable income exceeds $640,600 for a single filer or $768,700 for married filing jointly.
Layer on the 3.8% Net Investment Income Tax that applies once trust income clears the top bracket threshold and the marginal rate on investment income retained inside the trust reaches roughly 40.8%. A $500,000 inherited IRA distributed and retained inside an accumulation trust can burn through the compressed brackets in a single year, leaving the family with a materially larger tax bill than if the same account had gone to an individual beneficiary.
The 10-Year Rule Now Has Teeth
The IRS finalized its regulations in July 2024. Beginning with the 2025 distribution year, if the original IRA owner died on or after their required beginning date, the beneficiary — including a see-through trust — must take annual RMDs in years 1 through 9 and empty the account by the end of year 10. Missing an RMD triggers a 25% excise tax on the shortfall, reduced to 10% if corrected within a two-year window under SECURE 2.0.
For a conduit trust, that annual distribution flows straight to the beneficiary. For an accumulation trust, the trustee must decide whether to pass it through or absorb the tax at trust rates.
Practical Takeaways
- Review any existing IRA beneficiary designation that names a trust. Trusts drafted before the SECURE Act frequently assumed a stretch of decades. Under the 10-year rule, that structure may now concentrate income into a compressed window.
- Match the trust to the beneficiary. Conduit trusts still work well when the goal is simply to sequence payments to a competent adult. Accumulation trusts remain the tool of choice for special-needs, spendthrift, or asset-protection situations — but the tax cost has to be weighed.
- Consider Roth conversions during your lifetime. Paying tax now at your own bracket may be cheaper than letting a trust settle the bill at 37% starting at $16,000.
- Coordinate with a tax professional. State trust rules, eligible-designated-beneficiary carve-outs (surviving spouse, minor child of the owner, disabled or chronically ill individuals, and those within 10 years of the owner's age) can change the calculus.
- Do not miss year-1 through year-9 RMDs. The 25% penalty is now enforceable, and trustees are personally exposed if the beneficiary is the trust itself.
Naming a trust as an IRA beneficiary is still a valid strategy — it simply carries a different price tag than it did before the SECURE Act. In 2026, the trust document, the type of trust, and the identity of the underlying beneficiary all have to line up with the 10-year clock and the sharply compressed trust brackets. Otherwise the estate plan built to protect the heirs may quietly hand a large share of the IRA to the IRS.
Sources: Fidelity Viewpoints, Kitces.com, Cerity Partners, Cote Law, SmartAsset, Lathrop GPM