A stretch IRA is not a type of individual retirement account. It is a method that can be utilized by the beneficiary of such an account to stretch out its value over a maximum amount of time.
With the traditional individual retirement account you can start to take distributions when you are as young as 59.5 years of age if you choose to do so. Because of the fact that you contributed into the account with pre-tax earnings you have to pay income taxes on the payouts.
What happens if you don’t need the money when you’re 59.5 years old? To go a step further, what happens if you don’t need the money at all at any point in your life?
You name a beneficiary who would inherit the funds. However, you are required to start taking distributions when you are 70.5 years of age because the IRS wants to make sure that taxes are paid.
If there is something left over after you pass away your beneficiary could choose to take the required minimum distributions. The amount of these distributions will be based on the life expectancy of the beneficiary. So the younger the beneficiary is, the lower the distributions can be.
By stretching the IRA and taking the required minimum distributions the tax advantages that are gained by tax-deferred growth are maximized.
It should also be added that with Roth IRAs you don’t have to take distributions when you are 70.5 or at any age because you contributed into the account with after-tax earnings. However, the beneficiary would indeed have to take required minimum distributions.
Giving Something Back
Giving to charity is something that many people get a great deal of satisfaction out of when they are engaged in the process of estate planning. When you work with a good estate planning attorney while you are making decisions he or she will examine your financial situation, and there may be significant tax advantages to be had in addition to the personal rewards.
Let’s look at two different vehicles of charitable giving that you may want to consider as you are looking ahead toward the future.
One of them would be the private family foundation. People often equate these foundations with billionaires like Bill Gates. However, the facts about private foundations are somewhat surprising to many.
While these large foundations are staffed the majority of private foundations in the United States do not employ anyone. Most of the foundations out there are actually functioning with less than $1 million in assets. So it may indeed be possible for you to start such a foundation.
Another possibility would be to make contributions into a donor advised fund. These funds already have the infrastructure in place to facilitate charitable giving to numerous different charities. As a result you deal with just this single entity but you can support a number of different causes.
You are entitled to a deduction for the year within which you make the contribution even if no grants are endowed during that year, and this can make end-of-the-year donations attractive. Another advantage is that there will be no tax on capital gains if you donate appreciated securities.
We Are Here to Help!
It is important to grasp the fact that estate planning is a long-term, ongoing process. You are invested in your relationship with your attorney because in most cases you’re going to have to update your plan over the years.
While it can be uncomfortable to discuss every nook and cranny of your life with someone that you just met you really do have to be completely forthcoming with your attorney so that no unpleasant surprises present themselves after your passing.
When you are open and honest as you inform your attorney about your estate planning goals he or she will be in a position to make sure that you ultimately walk out of the office with an ironclad estate plan that is tailor-made to suit your needs. If you are ready to get started, click this link to request a consultation or give us a call at 586-548-1000.