How Does One “Stretch” an Individual Retirement Account

An individual retirement account can be an important component to your retirement plan. When you start such an account you are taking a very positive step toward developing a financial underpinning in anticipation of your golden years.

While IRAs are obviously relied upon by the people who paid into the accounts over the years some individuals will find that they have something left over, and as a result these accounts have estate planning significance as well.

With traditional individual retirement accounts you are required to take distributions once you are 70.5 years of age. So even if you reached this age and you really didn’t need the money you would be compelled to take distributions. And, they would be subject to taxation because the contributions were made with before tax earnings.

However, if there was something left in the account after you pass away it would go to the beneficiary that you name when you start the account.

This beneficiary can “stretch” the IRA by taking the minimal allowable distributions. In this manner the tax free growth of the account will be maximized.

It should be noted that with Roth IRAs you are not required to take distributions at all because you deposited after-tax earnings. Because of this you could know all along that you were not going to take distributions out of the account and use it exclusively as an estate planning tool.

Your beneficiary would be required to take mandatory minimum distributions, but tax advantages would be realized over an extended period of time.