Naming a Beneficiary on Your Retirement Accounts Can Help Defer Taxes Over Your Heir’s Lifetime.

Using Retirement Assets for Estate Planning – Naming a beneficiary on your retirement accounts can help defer taxes over your heir’s lifetime.

A tax deferred is a tax not paid – Phil DeMuth

The “stretch” provision for IRAs and Inherited IRAs are a way to use the rules in the tax code to keep the IRA intact and growing for as long as possible into the next generation. The stretch IRA strategy, stretching Required Minimum Distributions over the heir’s life expectancy, extends the period which the assets grow tax-deferred resulting in a longer compounding period.

A stretch IRA keeps the IRA intact and growing for as long as possible after the IRA’s owner dies. It allows the IRA to keep growing throughout the lifetime of the beneficiary, compounding tax-free. By using the stretch IRA strategy, beneficiaries can spread post-death required minimum distributions across their own life expectancy using the IRS’s single life expectancy table for inherited IRAs. The younger the client, the higher the life expectancy and thus the lower the RMD, which would allow longer tax-free compounding in the IRA over time.

Retirement accounts are always registered to an individual, but unlike taxable accounts they allow you to name a beneficiary. In order to take advantage of the stretch strategy, you need to name a person as beneficiary not your estate or trust. Employer plans, such as a 401(k), 401(a) or 457, must be rolled over to an Inherited IRA that is properly titled so that it retains the original owner’s name while also indicating it was inherited by the beneficiary.

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