What is a Stretch IRA?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 06 October 2019
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The stretch IRA is an individual retirement account (IRA) that has been created to maximize the period of tax deferral, even to the point of extending the tax-deferred earnings to the next generation. This type of structure makes it possible for the survivors or beneficiaries of the owner of the IRA to claim longer deferral periods as the assets of the IRA are distributed according to the instructions left by the deceased. The ability to defer taxes for an extended period of time makes it possible for the beneficiaries to make arrangements to pay any applicable taxes associated with monies received from the IRA in any given tax period.

As far as organizing an estate, creating a stretch IRA is a simple process that helps to minimize the red tape that is often involved in settling the affairs of an individual after death occurs. For the most part, the establishment of the stretch IRA is the same as any type of individual retirement account. What is different is that the owner of the account specifies who is to inherit the assets contained in the stretch IRA. In the event that several beneficiaries are to share the monies deposited into the stretch IRA, the owner determines, in advance, what percentage of the disbursed funds should be forwarded to each beneficiary.


Making use of the stretch IRA option has several benefits. First, the owner of the account can rest assured that the collected cash in the account will be distributed to the person or persons named as beneficiaries. A second advantage is that the IRA money can be distributed over a longer period of time. This means that a parent can structure the stretch IRA so that children can receive disbursements annually for a period of many years, providing them with a degree of financial security.

Because the stretch IRA does include designating the person or persons who are to receive disbursements in the event of the death of the account owner, it is important to let each beneficiary know in advance that the individual retirement account is structured in this manner. Doing so makes it possible for the recipients of the disbursements to arrange their own finances in a way that accommodates the taxes that will come due once the period of deferral is completed.


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Post 1

The original owner is not able to determine an advance schedule of disbursements. The beneficiary chooses their how to disburse the assets from a few options available.

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