Ep. 80 of the Mullooly Asset Show, Tom talks about what a Stretch IRA is, and what to do if you’re named as a beneficiary on a retirement account.

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Tom Mullooly is an investment industry veteran of over 30 years. Prior to launching the “Mullooly Asset Show,” Tom (along with his sons) recorded close to 200 podcasts and nearly 200 videos, which can be found on the site

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A Stretch IRA is a type of Individual retirement account that allows beneficiaries to stretch out the distribution of the inherited account over their lifetime. It permits the beneficiary to extend the life of the account, which allows it to grow tax-free over a longer period. In this type of account, the beneficiary can receive payments over an extended period rather than having to take a lump-sum distribution.

A Stretch IRA is a unique way to pass on your retirement account to your beneficiaries without the burden of inheritance taxes. This strategy is commonly used by individuals who have amassed sizeable retirement savings and want their beneficiaries to receive the maximum value possible. It is a common misconception that IRA distributions are taxable income, but in fact, they are subject to income taxes. The biggest difference is when the taxes are due, and a Stretch IRA can help delay them.

The IRS allows beneficiaries to take minimum distributions from their inherited IRA over their lifetime, allowing the account to continue to grow tax-deferred. This approach can also help to reduce estate taxes owed by the beneficiaries. The Stretch IRA is beneficial for multiple reasons; it can provide a steady stream of income to the beneficiary over a prolonged period and enables the account to continue to grow, producing a higher compound interest effect.

To establish a Stretch IRA, it is essential to designate the correct beneficiary to be named as the owner of the account after your death. It is also important to avoid naming your estate as the beneficiary, as this will result in the IRA being distributed according to the terms outlined in your will, leading to potential tax complications.

In conclusion, a Stretch IRA is a useful tax-planning tool that allows for the continuation of retirement savings to pass down to your beneficiaries. It is important to understand the requirements and how to set up the account to ensure your beneficiaries receive the full benefits of this strategy. With a good strategy in place, the Stretch IRA allows you to leave behind a legacy and ensure that your hard-earned savings continue to benefit those closest to you long into the future.