Another potential change in the tax legislation involves the possible elimination of the "stretch IRA
." Under the current law, a beneficiary inheriting an IRA can opt to "stretch" the distribution of the account over his or her life expectancy, thereby deferring the payment of taxes on withdrawals for many years.
3 reasons to replace the stretch IRA
with life insurance
(41) Under current law, once a beneficiary inherits an IRA, the beneficiary can generally take distributions over the beneficiary's expected lifetime; (42) a "stretch IRA
" is the name for this life expectancy extension.
For example, if a beneficiary of her father's IRA elects to take distributions over her fife expectancy (commonly called a stretch IRA
payout), what portion of the annual minimum required distribution (MRD) is IRD?
The Obama budget would eliminate the stretch IRA
that allows beneficiaries to stretch the proceeds from an inherited retirement account over their lifetime.
[thumbs up] (3) The stretch IRA
may be safe for now, but it's about time that it was eliminated IRA accounts are not meant to act as estate planning tools, they are meant to provide retirement income to the account owner.
A Stretch IRA
is a tool that can increase wealth for beneficiaries over several generations.
This allows for using the surviving spouse's age in determining required minimum distributions, and for the naming of new designated beneficiaries (i.e., the so-called "stretch IRA
," see page 453).
"You can avoid almost all of that, or minimize it, with very simple strategies," says Pritchett, For instance, if an account holder names her individual children as beneficiaries, those children can use a "stretch IRA
" arrangement, This allows them to withdraw funds over the course of their lives, The type of IRA one chooses can also help limit taxes, Pritchett adds.
In Michigan, effective for 2005, a new Income and Principal Act goes in affect allowing post death payments of a stretch IRA
to be taxable to the beneficiary of the stretch trust.
Unless your clients are not going to be worth more than the exemption amount at the time of death and their heirs will be in the same or lower tax bracket from the time of the client's retirement until death, carefully consider whether a Stretch IRA
is the best solution to maximize wealth transfer.
"Even if measures like the stretch IRA
elimination don't come into effect, it won't hurt to have it."