Stretch IRA

Posted in Finance, Accounting and Economics Terms, Total Reads: 482
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Definition: Stretch IRA

IRA refers to Individual Retirement Account. Stretch Ira is not a different type of Individual Retirement Account but it is simply a new investment concept that allows to stretch the IRA over future generations. The stretch IRA is possible due to the concept called Required Minimum Distribution which makes it possible for the younger generation to get more money at a younger age. The younger the generation, the less is the Required Minimum Distribution and hence it allows the Individual Retirement Account to stretch further.

Not only the transfer is possible but it also allows to get the tax benefits for all generations.

For Example: Let us understand the simple wealth transfer that helps stretch the Individual Retirement Account:

Assuming a simple IRA worth $100,000 on 12/31/2013

Owner: ABC (deceased 12/1/2013). Now the IRA will be inherited by the family members in the following fashion:

Spouse: XYZ (Age 69 in 2014) - XYZ takes REQUIRED MINIMUM DISTRIBUTION of $20,234 in year 2014

Son: PQR (Age 45 in 2014) - PQR takes REQUIRED MINIMUM DISTRIBUTION of $16,892 in year 2014

Granddaughter: UVW (Age 23 in 2014) - UVW takes REQUIRED MINIMUM DISTRIBUTION of $9,042 in year 2014

Great Grandson: Dallas (Age 2 in 2014) - Dallas will have to take an REQUIRED MINIMUM DISTRIBUTION of $6,519 in year 2014

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