How to Stretch Out an IRA

Jan. 5, 2011 - PRLog -- 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:

•  Distributions are taken over a longer period of time. Traditional IRA account owners who are 70½ years old or older use the Uniform Table to determine their Required Minimum Distributions.   The only exception is if the IRA owner is married to someone more than ten years younger; the IRA owner can use the Joint Life and Last Survivor Table which requires lower distributions than the Uniform Table. To find out more from the IRS on RMDs, visit their Frequently Asked Questions web page on this topic at this link: http://www.irs.gov/retirement/article/0,,id=96989,00.html
•  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.

This article contains only small excerpts from the original source. To read the full length of the free handout, please visit the Free Resources section of the CSA website, http://www.csa.us/freeresources.

The Society of Certified Senior Advisors (SCSA), provides free resources and tools for our members as an ongoing commitment that we have in helping professionals to understand the complex and dynamic lives of modern senior citizens.

About SCSA
SCSA’s mission is to educate professionals to work more effectively with their senior clients. For those who work with seniors, this means understanding the key health, social and financial factors that are important to seniors—and how these factors work together. CSAs are able to integrate this into their professional practices, no matter what field they’re in. They’ve learned how incredibly gratifying it is to help seniors achieve their goals, and the seniors they’ve worked with have learned how important it is to work with someone who truly understands their age-related circumstances.  For more information about SCSA and its educational course, please visit http://www.csa.us.

Contact:
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SCSA educates professionals to work more effectively with their senior clients. That means understanding the key health, social & financial factors that are important to seniors — so you can find success in the senior market.