User:Fyre4ce/Stretch IRA

See also: Inheriting an IRA and Inheriting a Roth IRA

A  refers to the financial planning concept of designing an IRA (Traditional IRA or Roth IRA) for the maximum, tax efficient distribution of its assets as the account is inherited by succeeding generations. The SECURE Act of 2019 changed the rules for distribution for inherited IRAs.

Pre-SECURE Act Stretch IRAs
IRAs inherited before January 1, 2020 (excluding those inherited by a surviving spouse who elects to treat the IRA as their own) follow the pre-SECURE Act Stretch IRA rules.

Inherited Roth IRA
Roth IRA withdrawals are tax-free, so unless the beneficiary has an urgent need for the funds, the best strategy will generally be to leave the funds inside the Inherited IRA as long as possible, and withdraw a lump sum toward the end of the tenth year after the owner's death. This will maximize tax-free growth. Reasons for deviating from this strategy could include:


 * The beneficiary is not able to maximize contributions to their own tax-advantaged accounts, for example, by having access to a large Mega Backdoor Roth. Withdrawing distributions from an Inherited Roth IRA to make these contributions would be trading one tax-advantaged space for another, but the beneficiary's own accounts do not need to be closed down in ten years or less, and so provide much longer-term tax-advantaged growth potential than the Inherited IRA.
 * The beneficiary has debt with a higher interest rate than the expected tax-free return of investments available in the IRA. While the debt probably should not have been taken out in the first place, withdrawing Inherited IRA money to pay it off may be the best solution, along with addressing the problems that led to the debt in the first place.
 * Attractive taxable investments (real estate, private equity, etc.) are available that have higher return potential than the investments inside the Inherited IRA.

Inherited Traditional IRA
Traditional IRA withdrawals are taxable (or at least partly taxable if the IRA has any non-deductible basis) so substantial withdrawals can have severe tax consequences. In deciding the best withdrawal strategy, an investor should first understand their tax situation, particularly their marginal tax rate for various sizes of withdrawals

Articles

 * Want To Leave Money To Your Family? Stretch Your IRA, Denise Appleby, Investopedia

Google Books

 * Ed Slott

Calculators

 * RMD & Stretch IRA Calculator