How to Make Your Individual Retirement Account Last

KALAMAZOO, Mich. - Jan. 19, 2016 - PRLog -- If you own an Individual Retirement Account that you’d like to leave to a loved one other than your spouse, did you know that your account can be “stretched” to help future generations?

As an example, let’s say Mary decides to leave her IRA to her only child, Janet. How can she make the most of this gift?

Janet can create what’s called a “stretch IRA.” With this strategy, she withdraws a minimum amount each year based on her life expectancy, which can help stretch the IRA’s proceeds over her lifetime.

Who Gets to Stretch an IRA?

As the IRA owner, Mary can’t make this decision – Janet must decide on it after inheriting the IRA.* To help Janet evaluate her options, Mary invited her to meet with her Edward Jones financial advisor so that they could discuss the strategy in detail.

Janet learned that a stretch IRA isn’t her only option, of course. She could take a lump sum or divide the assets over a five-year period (if certain requirements are met). But these options might generate a larger tax bill. Also, a stretch IRA stretches out the account’s potential tax-deferred earnings.

How Does a Stretch IRA Work?

This is how Mary’s IRA might work as a stretch IRA for Janet.

• Year 1 - Mary (age 65) rolls $231,596 to an IRA and names her daughter, Janet, as beneficiary.

• Year 10 - Mary passes away, and Janet (age 46) begins receiving distributions from the IRA based on her single life expectancy.

• Year 48 - The IRA exhausts its assets, and $3,282,680 has been distributed from the stretch IRA over the life of the account.

What Should I Do Now?

Year-end is a great time to review your existing beneficiaries and then contact your financial advisor. He or she is always available to answer any questions you or your loved ones may have. If you believe a stretch IRA could be a beneficial option for your heirs, be sure to discuss it with them now.

Important Information:
Source: Edward Jones. Rate of return is calculated on an annual basis and is for illustrative purposes only; it does not represent any currently available investments. These calculations are based on a hypothetical 8% rate of return.
*By Dec. 31 of the calendar year after the year of death.