IRA Beneficiary Planning Strategies

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IRA Beneficiary Planning Strategies


Overview

Explore an effective estate-planning technique to ease the tax burden on your heirs and manage your retirement income smartly. If you don’t anticipate needing all your Individual Retirement Account (IRA) funds, consider a stretch IRA, also known as a Multi-generational IRA. This complex investment tool allows you to extend the tax-deferred status of your IRA long after your lifetime.

Key Concepts

A stretch IRA enables you to designate your children and grandchildren as beneficiaries of your retirement assets, allowing them to stretch out annual distributions over their lifetimes.

Structuring a Stretch IRA

There are four main strategies for structuring a stretch IRA:

1. Traditional Approach:
- Your spouse is the primary beneficiary.
- Children or grandchildren are contingent beneficiaries.
- Distributions and tax deferral extend only through the oldest beneficiary’s life expectancy.

2. Spousal Rollover Approach:
- Your spouse is the primary heir.
- Children or grandchildren inherit their own IRAs.
- This allows extended tax deferral and a longer growth period for the investment.

3. Participant-Direct Approach:
- Suitable if neither you nor your spouse need the IRA in your lifetime.
- Create multiple IRAs, with children and grandchildren as primary beneficiaries.
- Reduces mandatory minimum distributions starting at age 70½, preserving more for heirs.

4. Mixed Approach:
- Combines spousal rollover and participant direct strategies.
- Useful if the surviving spouse doesn’t need the IRA assets but maintains control.

Consult a qualified financial planner with expertise in Stretch IRAs to find the best approach for your situation.

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