Stretch IRA is an estate planning strategy used by beneficiaries, often family members, who inherit an Individual Retirement Account (IRA). Instead of taking a lump-sum distribution, beneficiaries can choose to receive minimum required distributions (MRDs) over their life expectancy.
This strategy provides potential tax advantages by reducing the annual tax impact of the inherited IRA. The tax on distributed amounts is deferred until withdrawal, allowing the remaining funds to continue growing tax-deferred.
Required Minimum Distributions (RMDs) for Stretch IRAs are calculated based on the beneficiary's life expectancy and the account balance. This may result in smaller annual distributions, preserving a larger portion of the IRA for future growth.
Spouses can utilize the "spousal stretch" by rolling over an inherited IRA into their own IRA. This allows the surviving spouse to use their life expectancy for RMD calculations.
Non-spousal beneficiaries, like children or grandchildren, can benefit from a Stretch IRA with distributions based on their life expectancy, providing an extended period of tax-deferred growth.
The SECURE Act, passed in 2019, introduced changes to Stretch IRAs. For non-spousal beneficiaries, it generally requires the full distribution of the inherited IRA within 10 years, with exceptions for certain eligible designated beneficiaries.
Estate planning considerations are crucial for aligning Stretch IRAs with overall wealth transfer goals, enabling tax-efficient transfer of wealth across generations.
Seeking professional advice from financial professionals or tax advisors is advisable due to the complexities introduced by the SECURE Act and the intricacies of estate planning.
Regularly reviewing and updating estate plans, including Stretch IRAs, is essential to align with changes in tax laws, family circumstances, and financial goals, ensuring the strategy remains effective and aligned with the account owner's intentions.
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