Your IRA Trust Could Reach the 37% Tax Bracket at $16,000
By Ian Herrick — 2026-09-01
You saved for retirement, created a trust, and named beneficiaries because you wanted to give your family security and opportunity. That intention matters.
But retirement accounts have rules of their own. If your IRA passes to a trust, the SECURE Act and the trust’s terms may affect how quickly money must be withdrawn, how much taxable income is retained, and how much protection remains for the person who inherits.
In 2026, estates and trusts enter the 37% federal marginal income-tax bracket once taxable income exceeds $16,000. A single individual does not enter that bracket until taxable income exceeds $640,600.
Those figures deserve attention. They do not, by themselves, tell you what to do.
How the SECURE Act Changed Inherited IRA Planning
The original SECURE Act, enacted in 2019, created the 10-year distribution framework discussed here. SECURE 2.0 changed other retirement-account rules, but it did not create this central inherited-IRA rule.
Before 2020, someone who inherited your IRA could often spread withdrawals over a lifetime. The SECURE Act replaced that option with a 10-year distribution period for most non-spouse beneficiaries.
Depending on whether you had already started taking required distributions, the person who inherits your IRA may also have to withdraw money every year during that period. They may not simply be able to wait and empty the account at the end of year 10.
Different rules apply to certain people, including a surviving spouse, a qualifying minor child, a disabled or chronically ill beneficiary, or someone close to you in age.
Traditional IRA withdrawals generally create taxable income. If withdrawals are compressed into 10 years, additional income may arrive during a beneficiary’s peak earning years, on top of salary, business income, or investments.
When a trust is the beneficiary, I also need to understand what the trust requires, whether it can retain distributions, who will receive them, and how each choice fits the future you want for your family.
Whether the trust receives five years, 10 years, or another distribution period depends on how the trust is drafted and who counts as its beneficiary under the retirement-account rules. A qualifying see-through trust may receive beneficiary-based rules, including the 10-year rule for many beneficiaries. If the trust does not qualify and you die before your required beginning date, the five-year rule may apply. If you die on or after that date, a different remaining-life-expectancy rule may apply.
The bottom line: The law changed the environment your plan must work within.
The $16,000 Figure Is a Signal to Review, Not an Instruction
The One Big Beautiful Bill did not create the compressed income-tax brackets for trusts. It made the existing individual, estate, and trust rate structure permanent. After applying the 2026 inflation adjustments, estates and trusts enter the 37% marginal federal income-tax bracket once taxable income exceeds $16,000.
For 2026, the federal income-tax brackets for estates and trusts are:
- 10% on the first $3,300
- 24% from $3,300 to $11,700
- 35% from $11,700 to $16,000
- 37% on taxable income over $16,000
These are marginal brackets. The entire $16,000 is not taxed at 37%. Still, a trust reaches the highest bracket with far less taxable income than an individual.
Now consider the person behind the tax return. Your daughter may be in the middle of a divorce. Your son may own a business backed by personal guarantees. A child may be recovering from addiction or may not be ready to receive six figures outright.
In those circumstances, forcing every IRA distribution out of the trust to reduce the tax rate could expose the inheritance to the very danger you were trying to prevent. Tax efficiency matters, but it is only one part of the decision.
The bottom line: The tax number tells you what to examine. It does not tell you what to do.
Two Families With the Same IRA May Need Different Structures
If your plan uses a conduit trust, retirement-account withdrawals generally pass through to your beneficiary. That can move taxable income from the trust’s compressed brackets to the beneficiary’s individual return, but it also puts the money directly in their hands.
If your plan uses an accumulation trust, the trustee can keep withdrawals inside the trust. Retained income may be taxed at higher rates, but the assets can remain protected during a divorce, lawsuit, addiction crisis, or period when your child is not ready to manage the money.
Neither structure works for every family. When I help you consider this choice, I look at your beneficiary’s age, relationships, work, debt, health, maturity, and other inherited assets. Then I ask what you want the money to support and what you never want it exposed to.
I do not choose a structure from a menu. Through the Trust Dad Planning Process, I help you consider how the legal, tax, financial, and human pieces should work together.
The bottom line: A complete plan protects the person, not merely the account.
Your Beneficiary Form Needs to Match Your Plan
Your IRA generally passes according to its beneficiary designation, not the instructions in your will. You can have carefully prepared documents in a binder while one old form sends one of your largest assets somewhere else.
A form may still name a former spouse, name an adult child outright when your current plan calls for protection, or point to a trust that was later amended. Even when the names match, the tax and distribution provisions may no longer support what you want for your family under current law.
I review the beneficiary form beside the trust, the retirement account, the family’s other assets, and the circumstances of the people who will inherit. I also coordinate with the CPA, financial advisor, and insurance professional so each person is working from the same picture.
The bottom line: A beneficiary form is part of the family plan, not a separate administrative task.
Protecting an Inheritance Also Means Preparing People
Parents often tell me they want to protect an inheritance without controlling their children from the grave. That is a wise distinction. Protection should give the next generation a stronger foundation, not prevent them from becoming capable decision-makers.
I ask questions that do not appear on an IRA form. Do your children understand why you built this wealth? Do they know why some assets will remain in trust? Have you chosen a trustee who understands both the legal responsibility and the person whose life will be affected by each decision?
A trust can protect money. A relationship-based planning process can also prepare people, preserve family knowledge, and give the next generation someone to call when a decision becomes real.
The bottom line: Protecting an inheritance and preparing the people who receive it are two different jobs. A complete plan does both.
Keep the Whole Picture Connected
The plan that fit five years ago may not fit now. Your IRA may have doubled, a child may have married, a business may carry new debt, or the person named as trustee may no longer be right for the role.
If you review those changes before the law or your life changes again, you may have more choices. An ongoing relationship also gives your family someone who already knows your plan, your people, and what your wealth was meant to do.
When your family is grieving, they should not have to introduce themselves to a stranger, locate every account alone, and guess which advisor to call first.
The bottom line: The relationship helps keep the plan connected to real life.
What to Review Now
Bring your plan back to the table if your estate plan predates the SECURE Act, your IRA has grown, or a trust is named as beneficiary and no one has reviewed that decision recently.
I help New York families coordinate their family circumstances, assets, beneficiary designations, legal documents, and advisor team through the Trust Dad Planning Process. The relationship does not end when documents are signed.
This article is for educational and informational purposes only and is not ERISA, tax, legal, or investment advice. Advice specific to your circumstances requires a separate consultation.
If you would like to understand where your plan stands, I invite you to book a complimentary 15-minute discovery call with me.
This material is provided for educational and informational purposes only. It does not constitute ERISA, tax, legal, or investment advice. You should separately consult an appropriate professional for advice tailored to your specific needs and circumstances.