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Six Powerful Reasons For The "Stretch" IRA
1. Timing Flexibility of Withdrawals: Under the stretch method, the
beneficiary is only required to make a minimum distribution each year and
can keep the rest of the account growing tax-deferred. For beneficiaries to
actively manage their taxes, it is quite possible that in a year where losses
are created from other activities the beneficiary could make larger
withdrawals that could be offset against any losses. In this case the result is
a TAX FREE withdrawal from inherited tax-deferred wealth.
2. An Account Many Beneficiaries Cannot Buy: The inheritance of an IRA
account by a beneficiary under the age of 59.5 is an extremely valuable
financial instrument because it is something they cannot buy. Individuals
under age 59.5 cannot make withdrawals from regular tax-deferred retirement
accounts without penalties but if they inherit one, there are no federal excise
taxes on the withdrawals. With an inherited IRA, beneficiaries have a
tax-deferred account in which they can manage their inherited IRA wealth
without any tax consequences. If this were an inherited Roth IRA, all of this
would be tax-free.
3. Control Over Taxes: When a beneficiary takes a full distribution of an
inherited IRA not only do they lose several powerful wealth preservation and
creation opportunities, but at the point of full distribution they become a
full-fledged partner with the IRS. The entire amount may be fully susceptible
to taxes and sole control of the timing of the taxes is gone.
For a beneficiary currently in their earning years, there may not be a need for
much or any of the income produced from the inherited required minimum
distributions. However, at retirement the beneficiary may want to expedite the
withdrawals for a higher level of income. By inheriting the IRA account under
the stretch method the beneficiary retains control of the withdrawal above the
required minimum distribution amount.
1. Timing Flexibility of Withdrawals: Under the stretch method, the
beneficiary is only required to make a minimum distribution each year and
can keep the rest of the account growing tax-deferred. For beneficiaries to
actively manage their taxes, it is quite possible that in a year where losses
are created from other activities the beneficiary could make larger
withdrawals that could be offset against any losses. In this case the result is
a TAX FREE withdrawal from inherited tax-deferred wealth.
2. An Account Many Beneficiaries Cannot Buy: The inheritance of an IRA
account by a beneficiary under the age of 59.5 is an extremely valuable
financial instrument because it is something they cannot buy. Individuals
under age 59.5 cannot make withdrawals from regular tax-deferred retirement
accounts without penalties but if they inherit one, there are no federal excise
taxes on the withdrawals. With an inherited IRA, beneficiaries have a
tax-deferred account in which they can manage their inherited IRA wealth
without any tax consequences. If this were an inherited Roth IRA, all of this
would be tax-free.
3. Control Over Taxes: When a beneficiary takes a full distribution of an
inherited IRA not only do they lose several powerful wealth preservation and
creation opportunities, but at the point of full distribution they become a
full-fledged partner with the IRS. The entire amount may be fully susceptible
to taxes and sole control of the timing of the taxes is gone.
For a beneficiary currently in their earning years, there may not be a need for
much or any of the income produced from the inherited required minimum
distributions. However, at retirement the beneficiary may want to expedite the
withdrawals for a higher level of income. By inheriting the IRA account under
the stretch method the beneficiary retains control of the withdrawal above the
required minimum distribution amount.
4. Minimization of Current Taxes: Many beneficiaries do not realize that taxable distributions from inherited IRA accounts can cause an
increase in taxes for the rest of their household income. Taking a full distribution of the account substantially increases their chance of
paying more taxes on all other household income. Since the taxable distribution is added to the personal tax return of the beneficiary, it is
calculated with all other income. This is a major shock to many uninformed beneficiaries of these inherited assets.
5. The Inheritance of a Personal Retirement Account: The inheritance of an IRA account is an invaluable financial instrument when it
comes to retirement planning for the beneficiary inheriting this asset. The inherited stretch IRA has all the same benefits and more of a
personal IRA. Many of those benefits are listed in this section. In today's inflationary environment, the inheritance of an IRA account and the
ability to use the stretch method is much more than just an inheritance. For beneficiaries it can provide financial peace of mind in their own
retirement as well.
6. The Perpetuation of a Family Legacy: All too often, beneficiaries have no emotional, physical or spiritual connection to their inherited
wealth. In these situations, rarely does the inheritance last beyond the second generation. Through the stretch method, beneficiaries can
preserve, protect and perpetuate their inherited tax-deferred wealth until the end of their lives. Their families and descendents can enjoy
the legacy created by the life, sacrifice and discipline of their parents and benefactors.
increase in taxes for the rest of their household income. Taking a full distribution of the account substantially increases their chance of
paying more taxes on all other household income. Since the taxable distribution is added to the personal tax return of the beneficiary, it is
calculated with all other income. This is a major shock to many uninformed beneficiaries of these inherited assets.
5. The Inheritance of a Personal Retirement Account: The inheritance of an IRA account is an invaluable financial instrument when it
comes to retirement planning for the beneficiary inheriting this asset. The inherited stretch IRA has all the same benefits and more of a
personal IRA. Many of those benefits are listed in this section. In today's inflationary environment, the inheritance of an IRA account and the
ability to use the stretch method is much more than just an inheritance. For beneficiaries it can provide financial peace of mind in their own
retirement as well.
6. The Perpetuation of a Family Legacy: All too often, beneficiaries have no emotional, physical or spiritual connection to their inherited
wealth. In these situations, rarely does the inheritance last beyond the second generation. Through the stretch method, beneficiaries can
preserve, protect and perpetuate their inherited tax-deferred wealth until the end of their lives. Their families and descendents can enjoy
the legacy created by the life, sacrifice and discipline of their parents and benefactors.
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