Withdrawing funds in a bypass trust

A family member inherited a bypass trust which is shared 50/50 with a sibling. Both siblings want to dissolve the trust. Can funds be moved from dissolved bypass trust into a 401K or other investment to delay taxes until funds are needed?

Generally you can rollover a Traditional IRA to a 401k but the fact that IF it’s an inherited IRA makes me think you should talk to an Enrolled Agent who specializes in trusts and estates.

You can have a payroll deduction to a 401k but I don’t know if inherited money is subject to a 10 year withdrawal rule or if there are any rollover options. Being a non spouse inheritant, I’m not sure

If it was $$$ in a taxable account, it’s cost basis is the amount on the date of death whether it is a step up or step down in cost basis. If it’s given prior to death, there is NO STEP UP in cost basis but there might be a step down in cost basis.

Thanks for the reply. It’s been a very confusing process. The funds are sitting in a money market account in the bypass trust. Account manager said we cannot take partial withdrawals it can only be completley dissolved. There is not a 10 year rule for this trust.

I think you’re gonna find that the bypass trust’s trustee makes the call, not the trustors. Bypass trusts are typically not revocable upon the death of the originating trustor.

Thanks for the reply. So much paperwork has been done to the point that the person (trustor) we are dealing with said all they need is where to send the funds. Just trying to figure if siblings should just have sent to their checking accounts or if there is another option. Really don’t understand the process, just don’t want to make wrong move and pay more taxes than necessary.

This would provide the beneficiaries with an opportunity to maximize their IRA and 401k contributions. If they act quickly they could maximize their IRA contributions for 2022, assuming that has not been accomplished to date.

Or invest in tax free munis.