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11:11, 16 November 2017

Understanding the Stretch IRA


A stretch IRA enables your beneficiaries to receive benefits for decades; it is available through the stretch IRA. It is not very complicated in terms of star-up, but implementing the plan can be a whole other ballpark. If you have an IRA then consulting an Estate Planner specifically versed in IRAs is advisable. But, why opt for the stretch IRA? There are some very good reasons.

Withdrawal Flexibility

With the method of stretch IRA, the beneficiary of the distributions can opt to make the minimum distribution every year and is allowed to have the rest kept, tax-deferred, in their growing account. This is of great benefit because when losses are created via other means, the beneficiary is able to make larger withdrawals in order to offset their costs from losses. The resulting withdrawal is tax free thanks to the inherited wealth that is tax-free.

An Account Not Available for Purchase

The stretch IRA inherited by someone under age 59.5 is truly valuable as there is no other way that someone under that age would be able to withdraw funds without being penalized for it. Inheriting the account is the only way to enjoy the tax-deferred wealth for someone younger than 59.5; there is simply no way that this can be bought. The tax-deferred, inherited IRA is the ‘Holy Grail’ that younger individuals can enjoy free from the typical federal excise taxes for withdrawals.

The Ability to Control Taxes

While the idea of taking the full distribution for an inherited IRA seems exceedingly attractive, taking advantage of a stretch IRA will allow for more control over how the money is taxed. The main point is the preservation of the wealth. A beneficiary who is still in their earning years can choose to take only the minimum distribution amount as they are able to earn regular income in order to pay for their day-to-day expenses. When the beneficiary retires, though, they may opt to expedite their withdrawals. The beauty of the stretch IRA is that it is solely under the control of the beneficiary when to withdraw the minimum distribution amount or when to withdraw more.

Current Tax Minimization

What a number of the beneficiaries of a stretch IRA do not realize is that they may see an increase in household income taxes due to the inherited account. Taking a full distribution will significantly increase the amount taken for taxes as it is calculated in addition to other income. It might come as a shock to the uninformed, so make sure to understand this point fully. By knowing this simple information, a beneficiary can be certain to make the best decisions in order to minimize taxation.

Perpetuating the Family Legacy

Inherited wealth does not create physical, spiritual or emotional connections within the beneficiaries. The inheritance, in this type of situation, will rarely last beyond generation two. With the stretch IRA method, a beneficiary is able to preserve, perpetuate and protect the tax-deferred wealth they have inherited throughout their lives. Descendants and family members are able to enjoy their parents’ and benefactors’ legacy bought through sacrifice and discipline.

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