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