A Stretch IRA is a wealth-transfer strategy that allows you to extend the period of tax-deferred earnings on the assets of a pre-existing, or newly established IRA by passing your IRA assets to a younger beneficiary. This allows the money that would have been paid in taxes to work for your heirs, instead of Uncle Sam.
An article in Business Week, states an IRA beneficiary lost over 90% of his IRA due to immediate taxation. This could have been avoided had a proactive advisor been consulted.
Under IRS regulations issued in 2002, any individual who holds a traditional IRA can change the beneficiary to "stretch" IRA distributions. If you do not need to live on your IRA assets and want to benefit younger generations, consider using the Stretch IRA strategy.
A Stretch IRA provides tax-efficient wealth transfer.
Original IRA $250,000 Net to Heirs - Outcome Comparison
Numbers based on married couple of 65 and 64 with one beneficiary.
When you choose to put money into an IRA, you make a deal with the government to pay taxes on it later, when you take the money out. If you choose a traditional IRA, it is tax-deferred and the taxes are deferred until withdrawal. Senator William Roth, Jr. (R-DE) introduced the IRA Expansion Bill on March 22, 1999. This new Roth IRA created was not tax-deferred, but presented the scenario upon which one would not pay taxes on the gains. A Roth IRA Conversion allows you to turn your traditional IRA into a Roth IRA, whereas you pay taxes up front on the converted amount, but NONE later. That means once you've created the Roth IRA, you don't have to worry about taxes upon withdrawal.
Determining when (or if) you should convert to a Roth IRA is an individual decision based on factors such as your financial situation, age, tax bracket, current assets and alternate sources of retirement income. Your unique circumstances help determine what is right for you.
Roth Frequently Asked Question #1: Can I convert my IRA or employer plan to a Roth IRA?
The answer is most likely, YES! In 2010, the restrictions for Roth IRA Conversions were greatly lifted and it has opened the door to allow many more people to convert to a Roth IRA. Call us today to find out how you can convert and mazimize your IRA.
Roth Frequently Asked Question #2: Can I name a trust as the beneficiary of my IRA or Roth IRA?
YES, you can name a trust as the beneficiary of your IRA or Roth IRA. However, do not do this unless you understand all of the ramifications of having a trust instead of an individual inheriting the IRA. Always consult with an IRA expert advisor before taking this step. Never move your IRA assets into the trust or retitle your IRA into the name of the trust. Both of those actions are taxable events and you will owe income tax on the entire balance in your IRA and you will no longer have an IRA!! The trust should simply be named as the beneficiary on the beneficiary form.
Here are two important links that serve as resources for your benefit:
Should you have any questions or need to learn more about how to leave a legacy, please contact us.