Updated July 28, 2026. Quick answer: There are two deadlines and most explanations collapse them into one. The distribution must occur within the first 65 days of the year. The §663(b) election to treat it as made in the prior year is a separate act, made on the return. Do the distribution and forget the election and you get no benefit at all.
The two steps
| Step | When | If you miss it |
|---|---|---|
| Make the distribution | Within the first 65 days of the year | Nothing to elect — it is a current-year distribution |
| Make the §663(b) election | On the return | The distribution counts in the year it was actually made |
The failure mode is a trustee who does the hard part and skips the easy one. The money moves on time, everyone assumes the prior year is handled, and the election is never made — so the income stays taxed inside the trust at the compressed rates the distribution was meant to avoid. The election is the step that actually produces the result.
The leap-year detail
Trusts must use the calendar year under IRC §644, so the 65 days always run from 1 January. In a leap year the window therefore closes on 5 March rather than 6 March, because the extra day in February consumes one of the 65. It is a small point that turns a compliant distribution into a late one once every four years.
Note also what the election cannot do: it does not increase what is deductible. The deduction is still capped at distributable net income. The 65-day rule changes when a distribution counts, not how much of it is deductible.
No dollar amounts appear on this page. The trust rate brackets are adjusted annually, and the trust threshold for the net investment income tax is not a fixed figure at all — IRC §1411(a)(2)(B)(ii) ties it to the start of the top trust bracket, so it moves every year. Take current figures from the IRS revenue procedure for the year in question.
Sources
IRC §1(e) and §1(j) (as made permanent by P.L. 119-21); §641; §643(a); §644; §651 and §661 (distribution deduction); §663(b) and Treas. Reg. §1.663(b)-2; §671 and §673–677 (grantor trust rules); §675(4)(C) (substitution power); §1411(a)(2) and (b) (net investment income tax); Rev. Rul. 2008-22. North Carolina Dept. of Revenue v. Kaestner Family Trust, 588 U.S. 262 (2019). All read July 2026.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.