| Have you heard about a "stretch IRA" and wondered | | | | |
| if it was some special kind of IRA? Well, it isn't. In the | | | | The distribution rules that come into play at the death |
| simplest terms, a stretch IRA is an IRA that has a | | | | of the retirement plan owner are usually found in a |
| beneficiary designation that provides for the possibility | | | | plan document that few employees or advisors ever |
| of maintaining the tax deferred status of the IRA after | | | | read. Many, if not most plan documents say that in the |
| the death of the IRA owner. You might be thinking, "I | | | | event of death, a non-spouse beneficiary must receive |
| wish I had a stretch IRA. I only named my spouse as | | | | (and pay tax on) the entire balance of the retirement |
| my primary beneficiary and my kids as my successor | | | | plan the year after the death of the retirement plan |
| or contingent beneficiary." Well, guess what? You | | | | owner. These retirement plans don't allow a |
| have a stretch IRA. After your death, your spouse and | | | | non-spouse beneficiary to stretch distributions. For |
| or your children could continue to defer income taxes | | | | example, if there is a $1 million balance, the non-spouse |
| for many years after your death, as long as they are | | | | heir or heirs will have to pay income taxes on $1 million. |
| prudent and only take the annual minimum required | | | | Then, the remaining balance, roughly $650,000 ($1 million |
| distributions mandated by law. | | | | minus the $350,000 immediate income tax hit) would |
| | | | be outside of the tax-deferred protection of an |
| While the "stretch" concept applies to some | | | | inherited IRA. |
| retirement plans, many heirs of 401k owners could be | | | | |
| in for a rude awakening if their parents fail to plan | | | | Had the 401k participants taken that money and |
| properly. | | | | transferred it into an IRA before he died, the |
| | | | non-spouse beneficiary would have been able to |
| With proper planning you can put in place the | | | | stretch the distributions based on his or her life |
| mechanisms to stretch taxable distributions from an | | | | expectancy. Failing to make the IRA transfer will result |
| inherited IRA and certain retirement plans for decades, | | | | in an unnecessary massive income tax burden for the |
| sometimes as long as 80 years after the original | | | | non-spouse beneficiary.Top IRA expert and author of |
| owner dies. If, however, the employer's retirement plan | | | | Retire Secure!, James Lange, can keep you from |
| document stipulates the wrong provisions, the stretch | | | | jeopardizing your family's security. He has developed |
| may be replaced by a screaming income tax disaster. | | | | tax-savvy retirement and estate plans for over 1400 |
| The heirs could be in for a tax nightmare if Dad never | | | | U.S. citizens with appreciable assets in their IRAs and |
| transferred his retirement plan into an IRA. | | | | 401(k) plans. Boost your family's financial security with |
| | | | a regular dose of great information. Sign up for his |
| Many investors fail to realize that the specific plan | | | | monthly Retire Secure newsletter at Sign up now and |
| rules that govern their individual 401k or other | | | | get a free bonus report on the best order to spend |
| retirement plan take precedence over the IRS | | | | your retirement assets. |
| distribution rules for inherited IRAs or retirement plans. | | | | |