How to Stretch Out an IRA
For Immediate Release – December 30, 2010
Denver, Colorado
A Tax-Savvy Strategy for your Beneficiary (s)
Excerpt from SCSA newsletter, Senior Spirit:
Individual Retirement Accounts (IRAs) continue to be one of the most popular retirement financial planning instruments. Not only can they provide an excellent long-term source of income for the IRA owner throughout life, but they can also stretch the income over the beneficiary’s life expectancy as well.
A ‘Stretch IRA’ is not a designated type of IRA. It is a method of estate planning with your current IRA, Roth or traditional, which helps avoid large, unnecessary distributions to the IRA owner’s beneficiaries. Its purpose is to extend the life of the IRA, allowing for a tax-deferred compounding effect in a traditional IRA and tax-free in a Roth IRA that has incredible growth potential for the beneficiaries of the account.
The key advantages of setting up your IRA with a ‘Stretch IRA’ approach are:
- Beneficiaries enjoy IRA assets that are tax-deferred. Even while RMD payments are being made to beneficiaries, the bulk of the assets continue to make gains compounded on a tax-deferred basis. The amount of the annual RMD that the beneficiary is required to withdraw is calculated out using the IRA Single Life Expectancy Table.
- IRA beneficiaries can name their own beneficiaries. A person who is the beneficiary of an IRA and who is taking RMDs can name their own beneficiaries for the account. Provided that the account has not been depleted before their death, those subsequent beneficiaries are entitled to the assets of the account, fulfilling the original beneficiary’s single-life expectancy.
Each case is different, but individuals who should learn more about a ‘Stretch IRA’ are those who align with one or more of these statements:
- Once you reach the required beginning date (by April 1 of the year after the year the IRA owner reaches 70½) to withdraw funds from your traditional IRA, you wish to withdraw as little as possible.
- You or your beneficiary spouse will not require use of all remaining IRA assets during your lifetimes.
- You would like to reduce and control the amount of taxes on withdrawals made from the IRA.
- It is important to you that you leave a financial legacy to your family.
If the ‘Stretch IRA’ sounds like a good idea for your personal financial situation, consult with a qualified professional legal, tax or financial advisor before making changes to your estate and/or financial plan. The Custodian of your IRA account can assist you in getting the required changes made.
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