Should You Cash Out Your IRA as Part of Your Estate Plan? Why the Answer Is Usually No

In our last post, we covered how a see-through trust can be named as your IRA’s beneficiary without blowing up the account’s distribution treatment. That post gets a follow-up question fairly often, usually from a client who has done the math on the SECURE Act’s 10-year rule and started thinking about a workaround: if my beneficiary is going to have to empty this account within 10 years anyway, why not just withdraw the IRA myself now, pay the tax, and move the money into a regular brokerage account owned by my trust? Wouldn’t that give me — and eventually my beneficiary — more control?

It’s a reasonable instinct. It’s also, in almost every case we’ve modeled, the wrong move. Here’s why, and here’s what actually solves the underlying concern — including the harder version of the question: what if the IRA is your largest asset and you want protection for your beneficiary that lasts their whole life, not just ten years?

The Instinct: “I’ll Withdraw It Myself and Skip the Hassle”

The 10-year rule means that most non-spouse beneficiaries — an adult child in ordinary health being the typical case — must empty an inherited IRA by December 31 of the tenth year after the original owner’s death. That rule itself has applied to owners who died on or after January 1, 2020. What caught many practitioners off guard is that the final regulations confirming exactly how the rule works — including a requirement that annual distributions continue in years one through nine, not just a single payout in year ten, if you had already reached your required beginning date — didn’t become applicable until distributions beginning January 1, 2025 (T.D. 10001).

(This assumes a traditional IRA and an ordinary designated beneficiary — not a surviving spouse, a minor child, a disabled or chronically ill beneficiary, or someone no more than 10 years younger than you, all of whom fall under different rules. A Roth IRA also carries different tax mechanics on the way out.)

Faced with that, it’s tempting to think you can simplify things by taking the account out of the SECURE Act’s rules altogether during your own lifetime — withdraw it, pay the tax now, and reinvest the after-tax proceeds in a taxable account titled in the name of your trust. On paper, that account isn’t an IRA anymore, so none of the beneficiary distribution rules apply to it at all.

That’s true. It’s also not the win it looks like.

Why Withdrawing Early Usually Costs More Than It Solves

You convert deferred tax into immediate tax — at your rate, not a spread-out rate. An IRA withdrawal is ordinary income in the year you take it. Pull a large balance out over one or a few years and you will likely land a meaningful chunk of it in your top marginal bracket. Compare that to the 10-year rule, which lets the required distributions — and any additional discretionary distributions a trustee chooses to take — be spread across a full decade, potentially across multiple beneficiaries and tax years, often at lower blended rates than one lump withdrawal by you today.

You give up continued tax-deferred growth for as long as the money stays inside the IRA. Every year the account isn’t withdrawn, it keeps compounding without current income tax. Once withdrawn, the after-tax remainder is now sitting in a taxable brokerage account, where interest, dividends, and realized gains are taxed every single year going forward — permanently, not just for ten years.

You give up your own creditor protection today, not just your beneficiary’s protection later. Rhode Island law exempts IRAs from creditors during the owner’s lifetime, and the U.S. Supreme Court’s decision in Rousey v. Jacoway, 544 U.S. 320 (2005), confirms a similar exemption for IRAs in federal bankruptcy. A brokerage account — even one titled in the name of your revocable living trust — carries none of that protection. Because you’ve retained the power to revoke your own trust, the law still treats its assets as yours: the trust’s income stays on your own tax return, and funding it isn’t even a completed gift. Withdrawing the IRA to fund it doesn’t shield the money from your creditors, and it doesn’t do anything for your beneficiary’s creditors either, since nothing has actually passed to the beneficiary yet. You’ve simply traded a protected asset for an unprotected one, years before you needed to.

If you’re not yet 59½, it costs even more. A living owner who withdraws IRA funds before age 59½ generally owes the IRS’s 10% additional tax under IRC §72(t), on top of ordinary income tax. Your beneficiary would never face that cost — distributions taken after your death, including 10-year-rule distributions, fall within §72(t)’s death exception. Cashing out early doesn’t just accelerate the ordinary income tax; for a younger owner, it adds a penalty your family would otherwise never pay at all.

None of this actually changes what your beneficiary eventually receives. Whether the money leaves the IRA on your schedule (all at once, today) or the custodian’s schedule (spread across ten years, after your death), it ends up as the same after-tax dollars in your estate plan. The only real difference is that withdrawing early guarantees you pay more tax, sooner, and give up more protection, sooner — for no offsetting benefit to the beneficiary’s eventual distribution rules, which are set by who inherits the account, not by what account type held the money before you died.

The Harder Question: What If the IRA Is Your Largest Asset and You Want Lifelong Protection?

This is where the real planning question lives, and it’s a fair one. A 10-year forced payout is a real concern if your beneficiary has any creditor exposure, a shaky marriage, or simply isn’t someone you want receiving a large lump sum outright — and if the IRA is the biggest thing you own, that concern is magnified. But the fix isn’t to withdraw the account during your lifetime. It’s to make sure the account is inherited by the right kind of trust.

As our prior post explained, an accumulation trust named as IRA beneficiary lets the trustee hold distributions inside the trust instead of paying them straight out to the beneficiary, preserving spendthrift protection under Rhode Island trust law — protection that matters directly because of Clark v. Rameker, 573 U.S. 122 (2014), which held that an inherited IRA held outright by a beneficiary is not protected in bankruptcy.

It’s worth being direct about why that works. Clark held an inherited IRA unprotected because nothing stops the beneficiary from draining the whole account immediately — there’s no restraint on their access, so it isn’t really “retirement savings” anymore. A properly drafted accumulation trust with a spendthrift clause supplies exactly the restraint Clark found missing. That means the protection comes from ordinary Rhode Island spendthrift trust law operating on the money once it’s inside the trust — not from any special status the IRA itself carries once distributed. Worth flagging honestly: no Rhode Island court has yet ruled on this exact fact pattern, and Clark itself only addressed an outright inherited IRA, not one held in trust. The reasoning is well-supported by spendthrift trust law generally, but it’s a different legal basis than the IRA exemption itself.

That distinction matters here for another reason: Rhode Island’s own IRA creditor exemption statute is written in general terms — it exempts “an individual retirement account” without specifically addressing an inherited IRA in a beneficiary’s hands. Courts in other states have sometimes read similarly generic exemption language not to extend to inherited IRAs. That’s not a reason for concern so much as a reason not to rely on the IRA exemption alone — it’s exactly why building the protection into the trust itself, rather than assuming a statutory exemption will simply follow the money, is the more durable approach.

Here’s the point that gets missed: the 10-year rule controls how fast the IRA must finish paying out to the trust. It says nothing at all about how long the trustee must then hold that money once it’s inside the trust. Those are two entirely different clocks. The IRA custodian’s obligation to the trust ends at year ten. The trust’s obligation to protect and manage the money for your beneficiary — under the spendthrift terms you write into the trust — can run for your beneficiary’s entire lifetime, or however long you draft it to last.

In other words: lifelong protection for your beneficiary is absolutely achievable when the IRA is your largest asset. You get there by directing the destination of the money correctly — a properly drafted accumulation trust with real spendthrift teeth — not by changing the timing of when you personally withdraw it. Withdrawing early and moving the funds into your own revocable trust’s brokerage account doesn’t create that lifelong protection either; a revocable trust provides no asset protection during your life, and unless you re-draft it as an irrevocable, properly spendthrift-drafted trust for the beneficiary before you die, the funds sitting in that brokerage account face exactly the same “outright inheritance” exposure at your death that an inherited IRA would — except you’ve already paid the tax bill to get there and given up decades of potential deferral along the way.

There’s also a practical, personal reason not to withdraw a large IRA early when it’s your biggest asset: you probably still need it. Moving your largest asset out of a tax-deferred account and into any structure that meaningfully restricts your own access — which is what true asset protection for a future beneficiary would require while you’re alive — competes directly with your own retirement security and long-term care needs. A beneficiary-side accumulation trust solves the protection problem after your death, without asking you to give up control of your largest asset while you’re still living.

What to Do Instead

• Name a properly drafted accumulation trust — not a generic revocable living trust — as the IRA beneficiary, with spendthrift language built for your specific beneficiary’s risk profile. This is drafting-level work; see our companion post on see-through trusts for the four qualification requirements.
• Make sure every potential beneficiary of that trust is an identifiable individual — not just the primary beneficiary, but remainder and contingent beneficiaries too. The regulations look through to everyone who could eventually receive the money, and naming a charity or your own estate as a backup beneficiary can disqualify the entire trust from favorable treatment. This is exactly the kind of detail generic trust language misses.
• Plan for the annual RMDs required in years one through nine under the final SECURE Act regulations, rather than assuming the trustee can defer everything to a single year-ten distribution.
• Leave the account itself alone during your lifetime. Let it keep growing tax-deferred, and let your own IRA creditor exemption keep doing its job for as long as you’re alive.
• Coordinate with your CPA on the Section 691(c) IRD deduction once distributions begin — but know its limits. The deduction only exists if the estate actually owed federal estate tax on the account; with today’s large federal exemption, most estates owe none, and the deduction is zero. It matters mainly for larger estates that cross the federal estate tax threshold.

The Bottom Line

If your beneficiary faces the 10-year rule, withdrawing the IRA yourself and reinvesting the proceeds doesn’t get around that rule’s effects — it just moves the tax bill earlier and removes protection you and your family already have. If lifelong protection for your beneficiary is the real goal — especially when the IRA is the largest thing you own — the answer is a properly drafted accumulation trust as beneficiary, not an early withdrawal.

Every family’s numbers, beneficiaries, and risk factors are different, and the SECURE Act regulations are still developing. If you’re weighing this decision, talk with your estate planning attorney and your financial or tax advisor together before you touch the account.

This post is for general educational purposes and does not constitute legal, tax, or financial advice; consult a qualified attorney about your specific situation.

Geoffrey M. Aptt, Esq. is the principal attorney at Aptt Law LLC in East Greenwich, RI. Aptt Law is an estate planning, trust and estate administration, and business law firm. To schedule a planning conversation, call (401) 264-0654 or visit apttlaw.com.