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Selecting IRA beneficiaries part 2

In my last blog entry, we talked about selecting your beneficiaries. It’s very important to speak with an attorney or a trusted tax professional when setting up your IRA and selecting your beneficiaries.

In the last blog entry, we talked about the advantages of naming your spouse as your beneficiary, but what happens if you’re not married or your spouse is deceased? In this case, you can name anyone or anything you want as your beneficiary, with very few exceptions. You can name individuals, trusts, charities, companies, etc. as the beneficiary to your IRA.

A popular concept is the idea of the Stretch IRA or Multi-Generational IRA. This is not a product, but more of a concept on how to handle the beneficiary situation. The idea behind it is to name a beneficiary and have them begin taking distributions from the account based on their life expectancy. When you inherit an IRA and you are not the person’s spouse, you will have three options: take the assets in a lump sum, take the assets over five years, or take them out over your lifetime, according to the life expectancy table. With the Stretch IRA, your beneficiary will need to select the third option. This will allow the money in the IRA to keep growing and earning interest. In the long-run, the beneficiary will come out with much more money than if they took a lump sum or used the five year rule.

If the IRA is a Traditional IRA, the beneficiary will have to pay taxes each time they take a distribution. However, if the IRA is a Roth, the distributions will be tax-free, which makes the benefits even greater for the Stretch or Multi-Generational IRA.

If you have questions about any of this, please be sure to contact your CPA or trusted tax professional.

More information about “Stretch IRAs”

Terry White

About Terry White

I started my business career after getting my degree in Accounting from the University of New Mexico in 1983. My first job was as a controller for a local title company, and in 1987 I started First Financial Escrow, Inc. Over the years I played a part in several startup companies including First Financial Equities, Inc., First Financial Trust, Inc., First Financial Marketing, Inc. and Asset Ventures, Inc. In 1997 First Financial Escrow, Inc. was able to purchase the escrow accounts from Sunwest Bank and changed its name to Sunwest Escrow. As the market changes, Sunwest has grown and changed along with it. Besides my wife, Sheila, we have three boys, two daughters-in-law, one grandson, another grandson on the way and a future daughter-in-law. Sunwest is my passion, and I enjoy coming to work every day to see what will happen next. I enjoy fly fishing, spending time in Colorado, biking and watching my boys play soccer.