Extended IRA Quick Reference Guide
From: wealthmanagement.com
Knowing the distribution options available to beneficiaries upon the death of the IRA account holder is the key to using the Extended IRA strategy.
What Is It?
Extended IRA is a concept not a product. It is a way for the beneficiaries of IRAs to ease the tax burden of taking required distributions from inherited IRAs and maximizing the deferral period for the money in that account. This strategy does not guarantee returns or insulate the beneficiary from loss, including loss of principal and be aware that inflation erodes purchasing power.
The Strategy
Extend payments over the life expectancies of IRA beneficiaries using an IRS proscribed life expectancy table.
It can be created by the IRA owner using our Beneficiary Designation Form or by the beneficiary upon the death of the IRA owner using our Beneficiary Election Form. The most likely scenario for the use of an Extended IRA strategy is when a non-spouse is the beneficiary of the IRA.
Target Market
Owners of IRAs who will not need the money from this account for their own retirement needs and who want to ease the tax burden to beneficiaries and increase the tax-deferral period for the account after they die.
Beneficiaries of IRAs who would like to ease the tax burden of receiving required distributions from inherited IRAs and maximize the tax-deferral period for this inherited account.
Key Terms
- Stretch IRA – Alternate name for the Extended IRA concept
- Inherited IRA – An IRA that is now owned by the beneficiary. Also known as a beneficial IRA.
- Required Minimum Distributions (RMDs) – The minimum payment, based on life expectancy, a beneficiary must take from an inherited IRA.
- Designated Beneficiary – A living person whose life expectancy can be used to extend the required payments from an inherited IRA. The term may also apply to a properly drafted trust.
- Successor Beneficiary – A beneficiary who can take over payments if a designated beneficiary dies after starting to receive RMDs. The original IRA account owner can designate the successor or, if the owner doesn’t name one, the beneficiary can name a successor. RMDs paid to the successor beneficiary are based on the original designated beneficiary’s remaining life expectancy.
