Stretch IRAs

First off, I want to apologize for not posting lately. The market has been crazy and since I am in the middle of it, being in the financial industry, I've had a lot of work to do and too much on my mind to post. I will try and get back into a regular routine.

I received a comment from someone that wanted to know about Stretch IRAs. So this is what I will talk about in this post.

Starting off, you may be wondering what a 'Stretch IRA' is.

A Stretch IRA is a term used to describe an IRA established to extend the period of tax-deferred earnings, possibly over multiple generations. This IRA can be opened at any time. After the owner of the IRA dies, the beneficiaries will have the longest allowable period of tax-deferral on the required distributions of the IRA assets. The beneficiaries must start taking their required distributions in a timely manner once they inherit their portion of an IRA so it's important that each beneficiary is informed of the intention to 'stretch' the IRA.

With that said, is a Stretch IRA the right choice?

If you have enough money and income to fund your retirement without dipping into your IRAs, a Stretch IRA may work for you. Many older people put all or most of their retirement savings into tax-deferred IRAs with the intention of leaving these as an inheritance for their children. What they don't anticipate is the tax burden they are placing on their beneficiaries once they inherit the IRAs. A Stretch IRA can make this tax burden much less for beneficiaries once they inherit an estate. You will, however, need to review your Stretch IRAs periodically to be sure the beneficiaries are up to date.

So, how do you set up a Stretch IRA if it is right for you?

• The first thing you must do to set up a stretch IRA is choose the beneficiaries.
• Second, talk with a Financial Advisor. The IRA must be set up properly for your beneficiaries to benefit so you should work with a person or organization familiar with IRAs when setting one up.
• Next, you need to set up separate accounts for each beneficiary. If there is one beneficiary, set up one account. If you have multiple beneficiaries, you need to set up a separate account for each and designate the percentage of the IRA in the account. When the IRA holder dies, each beneficiary can choose to have their share distributed over their life expectancy.
• Lastly, you need to review the account with beneficiaries. It is important to let them know that they will inherit a portion of IRA assets upon your death.

Despite how helpful and beneficial a stretch can be, there is a possibility of a downside to a Stretch IRA. It may not be right for everyone. If you need the money in the IRA for retirement or before your retire, the stretch arrangement will be of no benefit. The tax laws might change before your heirs have a chance to benefit from the stretch IRA and might end up with a tax burden. You must review your stretch IRA arrangements at least annually so that your beneficiaries are kept up to date.

Hope this helps. If there are any more ?'s regarding these leave a comment and I'll get to them.

Retirement planning is key and the more that you can sock away sooner, the better. Keep that in mind. The most powerful financial tool is compounding, that year over year appreciation will make your assets grow a great deal. It is then important once you have the assets and a big sum of money to plan accordingly.