Stretch IRA

What is a stretch IRA?

A stretch IRA is sometimes known as a stretch out IRA is often used in estate planning. A stretch IRA is defined as an IRA set up to extend the benefits of an IRA over a long period of time such as over generations. A stretch IRA is often used when an IRA is passed on by a deceased IRA owner to his/her beneficiary. With the stretch IRA set up, the beneficiary can continue to benefit from the tax advantage of the inherited IRA.

Who uses a stretch IRA?

The beneficiary of the following IRA accounts often uses a stretch IRA to extend the life of the IRA.

• Traditional IRAs (including SEP, SAR-SEP, and Rollover IRAs)
• SIMPLE IRAs and
• Roth IRAs

Why is a stretch IRA useful?

A stretch IRA is useful because the IRA rules state that upon the death of the IRA owner, the beneficiary must choose a distribution option of the inherited IRA. For example, IRA Distributions must begin by December 31st of the year following the year of the IRA owner's death. Some beneficiaries choose lump sum distributions, some choose to take distributions over time and some choose to rollover the IRA.

What is a stretch IRA rollover?

When an IRA owner dies, the IRA beneficiary has the option to rollover the decedent's IRA into the beneficiary's own IRA account. The existence of a stretch IRA allows the beneficiary to name his/her own primary beneficiaries who could then name their own remainder beneficiary.