Leaving a Legacy: Stretching Your IRA
Stretching Your IRA: A simple way to make your money mean more to future generations
You’ve planned carefully for your retirement. And, the rewards for that wise planning can surface as IRA or annuity assets that you may not need. Taking only the Required Minimum Distribution (RMD) from your IRA, or owning a non-qualified annuity contract, may protect you from a sizeable tax liability and leave funds for your beneficiaries. However, receiving an inheritance in a lump sum can cause the ones you love significant tax burdens.
Your beneficiary can choose to stretch out payments and reduce the tax burden. All you have to do is name your beneficiaries. At Great American Financial Resources®, Inc., we call this stretching your IRA. Stretching your IRA allows beneficiaries to receive distributions over the course of their lifetime (even if you have previously started taking distributions from your IRA based on your own life expectancy). This can provide both you and your heirs with significant benefits.
Tax control of annuity distribution
With lump sum payouts, much of the distribution may be taken by taxes. Stretching out payments across beneficiaries’ lifetimes allows the money to grow tax deferred, spreads the tax liability across many years and may avoid higher tax brackets. Stretching your IRA can be a great financial planning tool.
Beneficiaries can choose to increase payout amounts or cash out at any time. Remember that stretching your IRA is revocable: Owners can change beneficiaries at any time prior to their death, and beneficiaries can still opt to take a lump sum.
Transfer of wealth to multiple generations
Beneficiaries may have the opportunity to take only an amount equal to the Required Minimum Distribution. If a beneficiary dies before the end of his/her life expectancy, any remaining balance can be passed on to future generations.
It’s easy to stretch your IRA or non-qualified annuity for future generations. But, it’s important to plan ahead. Below are some steps that you can take if you’re interested in this option:
- Choose your beneficiaries and the percentages you’d like to allocate for them. These decisions are revocable and can be changed at any time during the owner’s lifetime.
- Contact your GAFRI company financial professional to help stretch your IRA or non-qualified plan for future generations.
To stretch your IRA, your estate should not be named as beneficiary. While some trusts allow for stretching an IRA, many do not. You should consult with an attorney who understands the Required Minimum Distribution rules if you want to name a trust as beneficiary, while retaining the ability to stretch your IRA. While the concept of stretching your IRA or annuity seems somewhat simple, we recommend consulting your Great American Financial Resources’ company agent to learn more details about stretching your IRA and your opportunities to leave a lasting legacy for future generations.