How Does One “Stretch” an Individual Retirement Account

We all know that you have to save money if you want to make some type of very significant financial move such as buying a home or a second home. You have a goal in mind, you gain an understanding of what it will take to reach that goal, and you exercise the financial discipline that it takes to reach your objective over time.

Unfortunately far too many people don’t view retirement in the same light. Perhaps this is because they expect too much from Social Security, and indeed the majority of people who are receiving Social Security benefits say that it is their primary source of income.

For many, it is more or less their only source of income.

The truth is that Social Security payouts are not enough to live on if you really want to enjoy your free time to the fullest, so you have to think ahead and build your own nest egg for retirement.

A lot of people do this by contributing into traditional individual retirement accounts. If you do this you must be aware of the fact that the distributions will be considered to be taxable income by the Internal Revenue Service.

And, if you pass away before completely depleting the funds your beneficiary will be subject to taxation on the distributions as well.

However, he or she can “stretch” the IRA by taking the required minimum distributions. In this manner the tax responsibility would be stretched out over the maximum amount of time.

Another thing to consider is the age of the beneficiary. This required minimum distribution will be calculated based on the age of the beneficiary. The older the beneficiary is the higher the RMD will be. So, under certain circumstances it may be advisable to make a grandchild or great-grandchild the beneficiary rather than a child.

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Alan Augulis, Estate Planning Attorney

Mr. Augulis founded his Warren, New Jersey law firm so that he could focus his practice in the areas of advanced estate planning and tax law. Mr. Augulis has invested considerable time and energy helping to educate others on the topic of estate planning and has become a sought-after speaker in the tax and estate planning arena because of his informative and entertaining seminars.

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