Maximizing the Power of the Stretch IRA

The Stretch IRA is a powerful wealth transfer strategy, because it stretches out your IRAs ability to grow tax-free.
The basics of establishing the Stretch IRA are as follows:

• Name younger beneficiaries
• Be sure your beneficiary designations are up to date
• Discuss the Stretch IRA with your beneficiaries

After that, its time to consider the next steps to maximize the after-tax value of your IRAs for the next generation.

You want to consider having a custom beneficiary designation form (BDF) or naming a trust as the beneficiary (or both). The standard BDFs of most IRA custodians limit the options available to you and your beneficiaries.

You should know, of course, that the BDF controls who inherits your IRAs.

Moreover, when a trust is named IRA beneficiary, the power of a Stretch IRA is available only if the trust has special provisions required by IRS regulations that qualify it as a look-through trust.

Another scenario might include giving one beneficiary a specific dollar amount, while the others share the rest of the IRA. This might be done when you are leaving part of the IRA to charity and the rest to your children, as one example.