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Leave A Legacy With A Stretch IRA

March 1, 2013

Are you someone who does not need income from your Traditional IRA to fund your retirement?  If so, then consider the “Stretch IRA” technique as a way to leave a legacy for the next generation.

 

What is a “Stretch IRA”?  A Stretch IRA is simply a way to optimize the amount that passes on in a Traditional IRA from the original account owner to one or more younger beneficiaries.  As an IRA owner you are required to take minimum distributions after reaching age 70.5 based upon your life expectancy.  Beneficiaries that inherit an IRA are also subject to required minimum distribution rules, but based upon their own life expectancies.  As a result, younger beneficiaries with longer life expectancies than the original IRA owner are required to take out smaller percentages each year, therefore “stretching” out the life of the IRA over many more years after your death. 

 

Benefits of a “Stretch IRA” One major benefit of a Stretch IRA is tax-deferred growth.  Since your beneficiary has lower required minimum distributions and longer life expectancy, more money stays in the account to grow on a tax-deferred basis.  See how the chart illustrates the power of the tax-deferred growth over multiple account owners!  Plus, the stretch option is not a binding provision, so the beneficiary may choose to discontinue it by distributing more than the required amount anytime. 

 

Depending upon your situation, you may be able to stretch your Traditional IRA even further by converting it to a Roth IRA.  The added benefits of the Roth IRA are that there are no required minimum distributions ever for the original account owner and future withdrawals for beneficiaries will be tax-free.  Caution though, careful consideration and analysis is always recommended before converting to a Roth IRA.

 

A “stretch IRA” is a great way to preserve and even grow family wealth for future generations. Contact our office at 515-284-1011 or laura@westfinancialadvisors.com to learn more about the Stretch IRA.

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