Want a way to flex some retirement
planning muscle? Then consider a "stretch" (inherited) IRA. Not only
can this strategy preserve wealth for future generations, it also has the
potential to keep assets growing in a tax-deferred account for years to come.
Here's the inside scoop, based on one hypothetical family situation.
One Scenario
Imagine that George has accumulated $50,000
in a traditional IRA. His wife, Amy, should be well cared for through a $500,000
life insurance policy, his work pension plan, as well as several pieces of real
estate and investment accounts they have transferred to a trust. Although Amy
is also the beneficiary of his IRA, he wonders if it might be better to leave
the IRA to their 25-year-old son Robert.
George meets with his financial consultant and finds out that in 2002, the IRS
finalized rules simplifying the process of taking required minimum
distributions — that's the minimum amount that you must withdraw each year from
tax-deferred retirement accounts after you reach age 70 1/2. The new rules
extend the IRS's life expectancy table, reducing the amount that must be
withdrawn each year and making it much easier to "stretch" IRA assets
to future generations.
Weighing the Benefits
George discovers that a non-spousal
beneficiary of an IRA can receive distributions based on his or her own life
expectancy. That means if Robert is the beneficiary of the IRA, the
distributions could be stretched out over his entire lifetime.
Alternatively, Bob could name both his wife and son as primary beneficiaries.
If Amy decided she didn't need the income from the IRA, she could then allow
Robert to become sole beneficiary of the account. Yet another possibility:
George could bequeath the IRA to his one-year-old granddaughter Heather,
allowing her to take advantage of tax deferral by taking distributions over a
potentially even longer period of time.
"This is complicated," says George to his financial consultant.
"We want to be sure we haven't overlooked anything and that we're making
the best move for us and our family. At the same time, this appears to be a
tremendous opportunity to pass on wealth to future generations."
Have you determined how your retirement accounts fit into your overall estate
plan? Consider discussing this topic with your financial advisor.
© 2010 Standard & Poor's Financial Communications. All rights reserved.
© Carmen Coleman, President and CEO
Lifetime Financial Group, LLC
30 W. Broad Street, Suite 300
30 W. Broad Street, Suite 300
Rochester, NY 14614
(585)325-2525
