Stretch IRA Rules

Stretch IRA

What are the stretch IRA rules that you should know about? This type of retirement plan is considered one of the best IRA accounts for many because of the benefits offered. This type of account can be handed down from one generation to the next with careful planning, and that is a feature that many investors appreciate. A stretch IRA can even extend beyond the next generation, and be handed down to your grandchildren in some cases. Almost any type of IRA can be turned into a stretch version, as long as the two elements required are provided.

Whether you have chosen a traditional IRA vs Roth IRA, or you have a SEP or SIMPLE IRA, you can probably turn this account into a stretch version. You must be able to designate a beneficiary who will inherit the balance of your account when you are gone, and the beneficiary that you choose must be able to choose their own beneficiary, stretching out the benefits across the generations. That is why this type of plan is called a stretch IRA. Careful retirement planning is important, and this type of account eliminates the five year distribution rule for other IRA types that can cause an increase in taxes and other fees.

An education IRA can be created to provide for the education of your loved ones, but a stretch account allows your inheritance to the next generation to grow tax deferred, and this can add up to a large benefit. A stretch IRA allows you control over where the balance goes if you pass away, and ensures that any trustee can not liquidate the account within five years. A spousal IRA may also be converted to include the stretch component as well in most cases. If you plan on converting an existing IRA account into this type you should get expert advice before taking this step, to ensure all of the rules are followed.