What is a Stretch IRA?

A Stretch IRA is a ben­e­fi­cia­ry-nam­ing strat­e­gy for trans­fer­ring your wealth across gen­er­a­tions. A savvy and straight­for­ward invest­ment sav­ings con­cept, the Stretch IRA lit­er­al­ly “spreads the wealth” to oth­ers, pro­vid­ing you peace of mind and your ben­e­fi­cia­ries an added source of income.

Stretch IRA Benefits

  • Allow your ben­e­fi­cia­ry to take max­i­mum advan­tage of your IRA’s valu­able tax-deferred earn­ings poten­tial for a longer peri­od of time.
  • May low­er annu­al income tax lia­bil­i­ty because the dis­tri­b­u­tions are based on the beneficiary’s life expectan­cy, which typ­i­cal­ly is longer than that of the orig­i­nal IRA hold­er.
  • Name any per­son or any enti­ty as your ben­e­fi­cia­ry, though a ben­e­fi­cia­ry younger than you allows the IRA to stretch for a longer peri­od of time.

How to Stretch Your Legacy

Consider this example:

Legacy

This hypo­thet­i­cal exam­ple is for illus­tra­tion pur­pos­es only and does not rep­re­sent the past or future per­for­mance of any spe­cif­ic invest­ment vehi­cle. The exam­ple does not reflect the volatil­i­ty that can occur in an equi­ty-based account and does not reflect fees, infla­tion or state and local tax­es.

IRA

Assumptions:

  • Ini­tial invest­ment — $250,000
  • Based on a 6 per­cent annu­al return
  • Rein­vest­ment of income and cap­i­tal gains
  • Based on 20 per­cent fed­er­al income tax rate
  • All dis­tri­b­u­tions tak­en at the end of the year

Results:

  • Total Dis­tri­b­u­tion — $1,250,570
  • Fed­er­al Tax­es Paid — $250,114
  • Total Dis­tri­b­u­tion After Tax­es — $1,000,456
  • Years in Dis­tri­b­u­tion — 45