Branch Financial Strategies
866.584.7530
Offering Safe Financial Strategies &
Helping Protect Your Financial Future. . .Your Legacy
Stretch IRA's
In today's world finding a method to leave a lasting legacy to your loved ones without increasing their tax burden can be very difficult and complicated. S T R E TCH IRA's are accounts that you can set up to defer taxes indefinitely, not just during your lifetime, but through . . . m u l t i p l e g e n e r a t i o n s. A S T R E T C H I R A, also know as MULTI-GENERATIONAL IRA In the short run, you can use the concept to reduce the required minimum distributions you must take from your IRA once you reach age 70 1/2, and you will cut your current tax bill as well. All of this has became possible thanks to new rules established a few years ago that simplified distribution rules for qualified plans and IRA's. These new rules: These rules let you determine your minimum distribution each year, based on your current age and account balance. These new rules allow you to determine your beneficiary up to your death, and select a beneficiary more than 10 years younger. These moves are what combine to reduce current minimum distribution requirements and extend the deferral period. Your beneficiary would have the potential to S T R E T C H the distributions over his/her lifetime, which enables the funds to continue compounding tax-deferred for a longer period of time and avoids a large initial tax liability. The IRS does not want to postpone taxes forever so there is a limit on how long you can S T R E T C H your IRA. The distribution period cannot extend beyond the first generation beneficiaries life expectancy. For example, if you named your son as sole beneficiary of your IRA and he was age 40 when you died he could take RMD's based of his life expectancy of 42.7 years, starting the year after your death. If he died at Age 60, his designated beneficiary could continue taking minimum distributions based on what would have been your son's remaining life expectancy of 22.7 years. REQUIRED MINIMUM DISTRIBUTIONS OF IRA'S To calculate the year's Required Minimum Distribution amount, take the age of the retiree and find the corresponding distribution period. Then divide the value of the IRA by the distribution period to find the Required Minimum Distribution that must be taken.
Age of Retiree Distribution Period (in years) Age of Retiree Distribusiton Period (in years) Age of Retiree Distribution Period (in years) 70 27.4 86 14.1 102 5.5 71 26.5 87 13.4 103 5.2 72 25.6 88 12.7 104 4.9 73 24.7 89 12.0 105 4.5 74 23.8 90 11.4 106 4.2 75 22.9 91 10.8 107 3.9 76 22.0 92 10.2 108 3.7 77 21.2 93 9.6 109 3.4 78 20.3 94 9.1 110 3.1 79 19.5 95 8.6 111 2.9 80 18.7 96 8.1 112 2.6 81 17.9 97 7.6 113 2.4 82 17.1 98 7.1 114 2.1 83 16.3 99 6.7 115(or older) 1.9 84 15.5 100 6.3 -- -- 85 14.8 101 5.9 -- -- When the IRS creates a table that goes to Age 115,
is not a special type of IRA but a term commonly used to describe an IRA established to extend the period of "TAX-DEFERRED SAVINGS" for one or more generations and to benefit future beneficiaries like children and grandchildren.
Provide a uniform table to determine lifetime required minimum distributions regardless of age.
Permit a beneficiary to be determined up to the end of the year following the death of the primary owner of the IRA.
Allow the normal life expectancy that would apply at the time of death to be taken into account in the calculation of post-death distributions.
IT MEANS PEOPLE ARE LIVING LONGER AND WILL NEED
INCOME FOR A LONGER PERIOD.
Here is an example. Not every case works exactly like this because of different numbers, ages, need of income from the person who owns the IRA among other items to consider. BUT, for the right person and family this could be a TRUE LEGACY which would never be forgotten...
Assume Jason started his IRA at age 29. If he earned 7.00% rate of return every year his IRA balance would be $399,270.
Jason dies and leaves the IRA to his wife Erin who is 20 years younger than Richard and she lives until age 69. That is another 20 years of tax-deferred compounding, which at 7.00% would bring the value of the account to $1,612.547.
At Erin's death, she leaves the account to their granddaughter Emma, who has an additional 70 years of compounding. With compounding Emma has $213,487,584 when she retires.