See-Through Trust as IRA Beneficiary: How Conduit and Accumulation Trusts Work Under the SECURE Act 10-Year Rule

Imagine spending decades building a million-dollar IRA, carefully choosing a trust as the beneficiary so your heirs do not blow through it in a single weekend, and then discovering that the trust language drafted ten years ago now forces a massive tax bomb on a single day in the tenth year after your death. This is exactly what is happening to thousands of families whose estate plans were built around the old "stretch IRA" rules and never updated after the SECURE Act passed.

If you have an irrevocable trust named on an IRA beneficiary form, the difference between a conduit trust and an accumulation trust is no longer a footnote. It can swing the after-tax value of your retirement account by hundreds of thousands of dollars and determine whether your beneficiary actually gets the protection you wanted in the first place.

What Is a See-Through Trust?

A see-through trust is a trust that the IRS will "look through" to identify the underlying human beneficiaries when calculating distributions from an inherited retirement account. Without see-through status, an IRA paid to a trust must be distributed under the unfavorable five-year rule (if the owner died before the required beginning date) or based on the deceased owner's remaining life expectancy, both of which often accelerate income taxes.

To qualify as a see-through trust, four requirements must be met:

1. The trust must be valid under state law.
2. The trust must be irrevocable, or become irrevocable on the death of the IRA owner.
3. All beneficiaries must be identifiable individuals (not estates or charities mixed with people).
4. A copy of the trust documentation must be provided to the IRA custodian by October 31 of the year after the owner's death.

Miss any of these and the favorable rules disappear. The October 31 deadline in particular catches families flat-footed during a grief-filled year.

The SECURE Act Changed Everything in 2019

Before 2020, a young beneficiary could "stretch" inherited IRA distributions over their own life expectancy, sometimes 50 or 60 years of tax-deferred growth. The SECURE Act of 2019 ended this for most non-spouse beneficiaries and replaced it with the 10-year rule:

• The entire inherited account must be emptied by December 31 of the tenth year after the owner's death.
• If the original owner had already started taking required minimum distributions (RMDs), the beneficiary must also take annual RMDs in years one through nine.
• If the owner died before the required beginning date, the beneficiary can choose any distribution pattern as long as the account is empty by year ten.

The IRS finalized these regulations in July 2024 after years of waiting, and full enforcement of annual RMDs within the 10-year window begins in 2025. For 2021 through 2024, the IRS waived missed-RMD penalties, but that grace period is over.

The Eligible Designated Beneficiary Exception

Five categories of beneficiaries (called Eligible Designated Beneficiaries, or EDBs) escape the 10-year rule and may still stretch distributions over their lifetime:

• Surviving spouses
• Minor children of the original owner (until age 21, then the 10-year clock starts)
• Disabled individuals
• Chronically ill individuals
• Beneficiaries who are no more than 10 years younger than the original owner

If your trust is designed to serve a special-needs child or a much older sibling, the planning calculus is completely different from a trust for an adult child or grandchild.

Conduit Trusts: Simple But Now Risky

A conduit trust is required by its own terms to immediately pass through any distribution received from the IRA to the named human beneficiary. The trustee has no discretion to retain funds inside the trust.

Pre-SECURE Act era: Conduit trusts were popular because they passed only the small annual RMD to the beneficiary. The bulk of the IRA stayed inside the trust, growing tax-deferred and shielded from creditors, divorces, and bad decisions.

Post-SECURE Act reality: Because the conduit trust must pass through whatever is distributed, and because the 10-year rule eventually forces 100 percent of the IRA out of the account, every dollar of the IRA must end up in the beneficiary's hands no later than year ten. The trust becomes a temporary holding structure, not a multi-decade asset protection vehicle.

Worse, if a conduit trust does not require annual distributions in years one through nine, the trustee can wait until year ten and then dump the entire balance on the beneficiary in a single tax year, potentially pushing them into the 37 percent federal bracket and adding state income tax on top.

When a Conduit Trust Still Makes Sense

• The beneficiary is fiscally responsible and will manage the inherited assets well.
• Tax efficiency matters more than ongoing trust protection.
• The beneficiary is an Eligible Designated Beneficiary (lifetime stretch still works).
• The IRA is a Roth IRA, so distributions are tax-free and the beneficiary's bracket does not matter.
• You want the simplest possible drafting and administration.

Accumulation Trusts: Flexibility with a Tax Tradeoff

An accumulation trust gives the trustee discretion to either distribute IRA withdrawals to the beneficiary or accumulate them inside the trust. The trust itself becomes the long-term owner of the assets after they leave the IRA.

The upside is real:

• Assets stay protected from creditors, lawsuits, and divorcing spouses long after year ten.
• A spendthrift beneficiary cannot run through the inheritance.
• A beneficiary on government benefits (Medicaid, SSI) can have the trust continue without disqualification when properly drafted as a special needs trust.
• The trustee can time distributions to match life events, education costs, or other planning goals.

The downside is the trust tax brackets. In 2026, a trust hits the top 37 percent federal income tax bracket at just $16,000 of retained taxable income, while an individual filer does not reach 37 percent until income exceeds roughly $640,000. Net investment income tax of 3.8 percent kicks in for trusts at the same low threshold.

A trust that accumulates a $1 million inherited Traditional IRA over ten years could easily face an effective federal-plus-state tax rate north of 45 percent on retained distributions, compared to perhaps 24 to 32 percent if the same amounts had passed through to the beneficiary on their personal return.

When an Accumulation Trust Is the Right Tool

• The beneficiary has special needs and must preserve government benefit eligibility.
• The beneficiary has substance abuse issues, gambling problems, or chronic financial mismanagement.
• The inheritance is going through a generation that you do not want to receive funds outright (e.g., adult children with looming divorces).
• You want to control the ultimate path of the funds (e.g., to grandchildren after your child's death).
• The IRA is a Roth, so the higher trust bracket is irrelevant for retained earnings inside the trust until distributions begin.

A Real-World Comparison

Consider Marcus, a 67-year-old who dies in 2026 leaving a $1 million Traditional IRA to a trust for his 35-year-old daughter, Elena.

Scenario A: Conduit Trust

The trustee must immediately distribute every dollar that comes out of the IRA. To avoid bunching, the trustee withdraws $100,000 annually for ten years and pays it to Elena. Elena, who earns $90,000 in her own job, sees her marginal rate climb to 32 percent. Total federal income tax over ten years: roughly $260,000. After taxes, Elena nets about $740,000 plus the growth on the IRA during the 10-year window.

Scenario B: Accumulation Trust, Distributed Annually

The trustee chooses to distribute the same amounts to Elena each year. Tax outcome is essentially identical to Scenario A, but Elena's inheritance is now subject to spendthrift protection between the trustee's discretion and her receipt.

Scenario C: Accumulation Trust, Retained

The trustee keeps $80,000 of each $100,000 distribution inside the trust to grow long-term. The trust pays roughly 40 percent on retained income each year (federal trust brackets plus net investment income tax), losing about $32,000 per year to taxes versus $25,600 in Scenario B. Over ten years, the trust gives up an additional $64,000 in taxes but preserves principal under trustee control past year ten.

The right answer depends on Elena's situation. A surgeon with a stable marriage probably wants Scenario A. A daughter going through a contentious divorce probably wants Scenario C even at a higher tax cost. A daughter with a serious gambling problem almost certainly wants Scenario C.

The Hybrid Approach: Toggle and Sub-Trust Strategies

Modern estate plans often build "toggle" provisions that let the trustee switch the trust between conduit and accumulation behavior depending on circumstances at the time of death. Some drafters use a "trust protector" who can amend the trust based on then-current law.

The 2024 IRS final regulations also clarified that separate accounting is now permitted for trusts. A single see-through trust named on the IRA beneficiary form can split into sub-trusts at the owner's death, with each sub-trust applying its own RMD rules based on its individual beneficiary. This is huge for families with mixed beneficiaries, including a special-needs child (lifetime stretch) and healthy adult children (10-year rule) under the same parent's IRA.

Common Mistakes Families Make

• Stale documents. Trust language drafted before 2020 almost certainly does not contemplate the 10-year rule. Review every irrevocable trust named on a retirement account.
• Missing the October 31 deadline. No documentation to the custodian means no see-through status, which means accelerated distribution and accelerated tax.
• Pour-over wills naming the estate. An estate cannot be a designated beneficiary, so the IRA falls under the unfavorable five-year rule.
• Charitable beneficiaries lurking in residual provisions. A single charitable beneficiary in the residue can disqualify the entire trust from see-through status unless the trust is properly bifurcated.
• Ignoring state income tax. Trusts are taxed where the trustee resides or the trust is administered, which can pile a 10 percent state rate on top of federal compression.
• Forgetting Roth IRAs. Roth IRA distributions are generally tax-free, so the trust tax-bracket problem largely disappears, making Roth conversions during your lifetime extra valuable when planning for trust beneficiaries.

Action Steps for IRA Owners

1. Pull every beneficiary form for IRAs, 401(k)s, 403(b)s, and similar accounts. Confirm what is actually listed (you would be surprised how often it is wrong).
2. Identify which trusts are listed as beneficiaries and locate the trust documents.
3. Schedule a review with an estate attorney familiar with the 2024 final regulations. Pre-2020 trust language frequently breaks under the new rules.
4. Run the tax math both ways with your accountant, comparing conduit and accumulation outcomes given your beneficiary's situation.
5. Consider Roth conversions during your lifetime to shift the tax burden away from compressed trust brackets.
6. Document everything in writing so the trustee understands your intent for each beneficiary, including any flexibility you want them to exercise.

Keep Your Financial Records Organized for Estate Planning

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