A “stretch IRA” is not a new type of investment account. In fact, it is not even a new concept in the investing world. Instead, this is nothing more than a provision for transferring your IRA account from one generation to the next.
If you are interested in passing your wealth along to second or third generation beneficiaries, this type of IRA setup may be just what you are looking for.
A stretch IRA is a provision that you add to your current account. You can use the “stretch concept” with a Traditional IRA, Roth IRA, Simple IRA, or SEP. Since you are passing the money from one generation to the next, the money in the account can continue to grow tax deferred.
To be considered a stretch IRA two provisions must be in place. First off, you must select an IRA account that allows you to choose a beneficiary who is able to receive distributions based on a life-expectancy period. Secondly, the chosen beneficiary must be allowed to name a second or third generation beneficiary.
How a Stretch IRA Can Benefit You and Your Family
There are several benefits of a stretch IRA.
The main benefit is the ability for beneficiaries to defer paying taxes and to continue tax free growth. Without this provision, the beneficiary may be required to distribute the funds in a short period of time, potentially moving them into a higher tax bracket.
Although not always the case, a stretch IRA provision can be cancelled at anytime by distributing all of the money in the account. This flexibility is important in the case that the beneficiary needs to distribute more than the minimum requirement.
Are you interested in applying the stretch IRA provision to your retirement account? Contact your IRA provider for more information.