What is a stretch IRA?

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By Robin Crouch

The term “stretch” does not represent a type of IRA, it refers to a financial strategy that allows people to stretch out the benefits from an IRA as well as receive income tax advantages. By using this strategy, an IRA can be passed down from generation to generation while beneficiaries enjoy the income as well as tax deferred growth for as long as possible.

Not all IRA custodial agreements allow the stretch strategy, you should check with your IRA custodian or financial institution to determine if beneficiaries will be allowed to take distributions over a life-expectancy period.  Most IRA providers would rather make such allowances than have their customer transfer his or her IRA to another financial institution.

Please note, the average inheritance, when received by a beneficiary, is completely consumed within one year.  The reasons are numerous but here are a few:  Beneficiary wants to spend it; Creditors, Predators, and Divorce; Not understanding the rules and choices. . . when the money is gone, it’s gone.  With an IRA, not only would the money be gone, but there will be a huge tax bill to pay.

The good new is that the choice can be yours to make.  If you wish to remove some of the roadblocks and ensure that your beneficiaries take the stretch and provide them with asset protection to avoid losing what you have worked a lifetime to earn, please ask about our Heritage Trust.

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Don’t let Retirement Benefits go down the drain!

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By Robin Crouch

If there is no beneficiary named on your retirement account, who inherits and how is the the required distribution calculated?

Unfortunately, there are cases where Dad died, Mom was the named beneficiary, but she predeceased him. OR, Mom inherited the IRA and died before naming her own beneficiary.

Each IRA has it’s own rules and each IRA custodian has their own agreement with language that will indicate who inherits the IRA when there are no named beneficiaries. Most agreements default to the estate of the deceased IRA owner.

A designated beneficiary is a living, breathing person who can stretch distributions over their own life expectancy and pay the income tax accordingly. Traditional IRAs are typically funded with pretax dollars. Distributions out of the account after age 59½ are taxed as ordinary income at each individual’s tax rate.

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A Bird in the Hand is Worth Two In the Bush

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By Julian Guilfoyle

The belief that it is better to have a lesser certain benefit than the possibility of a greater one that may come to nothing is a decision increasing contemplated by today’s retiree. George Yacik outlines this decision that can have severe repercussions in the February issue of Financial Planning. In an article titled “Weighing a Pension Buyout”, Mr. Yacik discusses the complex decisions these retirees face when deciding between a lump sum disbursement versus a promised income stream for life. [Read more...]

Beware the IRA Beneficiary Pitfalls

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By Attorney Ted Brown

A Tax-qualified retirement account, such as a traditional IRA, 401(K), 403(b) or other tax-deferred account can pose a unique challenge when planning for your estate. This is because any withdrawals from the account are taxed as ordinary income.

Of course, this tax-deferred treatment is the great benefit of these accounts. While the account-owner is working, money saved for retirement and the gains on such investments grow tax-free. After retirement, presumably when the owner is in a lower tax bracket, withdrawals are taxed at a lower rate.

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