How To Avoid State Income Tax On Distributions From IRAs
Published Wednesday, July 3, 2019 at: 7:00 AM EDT
Do you own a large IRA and live in a state with an income tax? 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 your 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 your IRA would also benefit. Your spouse, children and other IRA beneficiaries could expect to get more from your largesse after you're gone.
Under the SECURE Act bill expected to be enacted before the end of 2019, your heirs would be required to distribute the IRA you leave them within 10 years.
According to Financial Advisor News Service, which we are licensed to distribute, naming your IRA beneficiary a non-grantor trust in a state with no income tax may allow your beneficiaries to avoid paying state income tax on the distributions from the IRA.
To be clear, income from your 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 your personal situation.
This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.
Fears of a China financial contagion infecting the global economy caused the U.S. stock market to plunge on Monday, but the Standard & Poor's 500 stock index recovered and closed with a one-half of 1% weekly gain.