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What is a Stretch IRA?


A stretch IRA stretches the period of tax deferred earnings of assets within an IRA beyond the lifetime of the person who set up the IRA, typically over multiple generations. In other words, they would allow you to pass your IRA down several generations to your grandchildren. Because there is so much time for the investments in the IRAs to grow at a compounded, tax-deferred rate, the potential payouts are sometimes portrayed to be multimillion dollar amounts. The potential income stream of the stretch IRA is based on IRS guidelines that include the life expectancies of the various beneficiaries. The amount of retirement money these plans generate depends on the rate of return of the underlying investment that funds the account and the length of time the money is invested. Typical underlying investments include mutual funds, variable annuities, individual stocks, and bonds. Sales presentations for stretch IRAs usually include value tables that give hypothetical examples showing how much


A stretch IRA is a distribution strategy that can extend the tax-deferred compounding of your IRA assets across multiple generations. WHEN SHOULD YOU USE A STRETCH IRA? If you do not need all the assets in your IRA to cover your expenses in retirement, consider the stretch IRA strategy. This strategy can “stretch” the time during which the IRA’s assets grow tax-deferred. As a result, a stretch IRA can serve as an important estate-planning tool. HOW DO YOU STRETCH A TRADITIONAL IRA? • If you name your spouse as beneficiary of your traditional IRA, he or she can roll the balance into his or her own traditional IRA when you die and name a younger beneficiary. • Your spouse then may take required minimum distributions (RMDs) over his or her life expectancy. If your spouse is under age 70½ when you die, he or she can delay taking RMDs until he or she reaches 70½. After your spouse dies, the second generation beneficiary may transfer the assets to an inherited IRA and begin taking RMDs over


The stretch IRA is an individual retirement account (IRA) that has been created to maximize the period of tax deferral, even to the point of extending the tax-deferred earnings to the next generation. This type of structure makes it possible for the survivors or beneficiaries of the owner of the IRA to claim longer deferral periods as the assets of the IRA are distributed according to the instructions left by the deceased. The ability to defer taxes for an extended period of time makes it possible for the beneficiaries to make arrangements to pay any applicable taxes associated with monies received from the IRA in any given tax period. As far as organizing an estate, creating a stretch IRA is a simple process that helps to minimize the red tape that is often involved in settling the affairs of an individual after death occurs. For the most part, the establishment of the stretch IRA is the same as any type of individual retirement account. What is different is that the owner of the acco

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