5 year distribution upon death
I just spoke to a 80 year old client about moving his IRA from his current stock portfolio to an EIA and setting it up to be a stretch IRA. He told me his advisor told him the beneficiary would have 5 years to stretch the distriubtion. Can you explain this? Is this required or elective? Is that the maximum they can stretch it to without it being set up as a multigenerational ira?
Permalink Submitted by Al Fry on Wed, 2008-01-09 04:38
He may be remembering what his advisor told him 11 years age, before he turned 70 1/2. The 5-year deferral option is not available once a person passes his RBD. The stretch will be available to a named designated bene, based on their life expectancy.
Permalink Submitted by Victoria Gunvalson on Wed, 2008-01-09 18:43
but doesn’t the acct have to be set up prior to death to be a stretch ira? He feels he does not need to move his IRA because his current advisor can do the stretch – even though his current advisor has not set up the multigenerational ira?
Permalink Submitted by Alan Spross on Wed, 2008-01-09 19:09
All IRA agreements must contain the 2002 RMD requirements allowing the stretch per Section 401a(9)(B). Attached is pasted from the Regs addressing effective dates and required amendment of IRA agreements:
>>>>>> >>>>>>>>>>
Amendment of IRAs and Effective Date
Rev. Proc. 2002–10 (2002–4 I.R.B.
401), provides guidance on when IRA
documents must be updated for these
final regulations and for changes made
by EGTRRA.
Effective Date
The regulations apply for determining
required minimum distributions for
calendar years beginning on or after
January 1, 2003. For determining
required minimum distributions for
calendar year 2002, taxpayers may rely
on these final regulations, the 2001
proposed regulations, or the 1987
proposed regulations.
>>>>>>>> >>>>>>>>>>
His current beneficiary will be able to use his own remaining life expectancy if individually named, or if the beneficiary named in a qualified trust. I trust that if he goes ahead with the EIA, he will be able to take his rather sizeable RMDs without any surrender charge applying, although they do not exceed 10% until he is 93.
The concept of a stretch or multi generational IRA is really just a strategy reflecting limiting distributions to the RMD amounts and naming a proper beneficiary, since the IRA contracts automatically provide the provisions for life expectancy distributions for designated beneficiaries.
Permalink Submitted by Denise Appleby on Thu, 2008-01-10 12:53
For a definition of the stretch , see http://www.retirementdictionary.com/Stretch-IRA.htm