Stretch IRA

Submitted by Palvindr Sandhu on Fri, 2015-05-08 18:44

In your Example #1 Steve starts his IRA with $100,000.

Steve & Debra you assume Steve’s IRA grows at 8%. AT 70 Steve begins to take RMD on schedule…..

I do not know of any way of guaranteed 8% source of income. The banks don’t even pay 1% how is the IRA going to stretch with taking RMD?

‘Paul’ Sandhu



Submitted by Alan - IRA critic on Fri, 2015-05-08 21:45

To have any chance of IRA earnings of 8%, the IRA would have to be mostly invested in equities, or perhaps alternative investments that are not suited for everyone. Bonds and CDs will not come close to generating earnings anywhere near 8% at this time.

Submitted by Palvindr Sandhu on Fri, 2015-05-08 23:10

What kind of alternative investments? R.E., Gold or ?Can you give me the names of a basket of equities that can guarantee 8% for about 5-10 years. If you can not do that it means that stretch IRA is more of a myth then a reality under the current market conditions.

Submitted by Jose Morales on Fri, 2015-05-08 23:33

the “stretch IRA” has always been a myth, or more accurately nothing more than a marketing gimmick to make people believe that something new or unique was being offered.  “stretch IRA” simply refers to using the beneficiary options allowed upon the passing of an IRA owner to their fullest potential.

Submitted by William Tuttle on Sun, 2015-05-10 03:33

No need to go to aleternative investments or even the risk of all equities. Take VBINX Vanguard Balanced Index Fund, with a moderate 60% Equities/40% Fixed income allocation. The average return over the past five years is more than 11%. Even the average return over the past ten years (including the financial crash 2007-2009) is more than 7%. Also, your entire premise is misguided. The intent of RMDs is to exhaust the tax deferral over the original owner’s/1st beneficiary’s life expectency. That means that the principal will be depleted. The average return probably only needs to be 3%-4%. 

Submitted by Palvindr Sandhu on Wed, 2015-05-13 21:54

The question was about STRETCH IRA as proposed by Ed Slot. There is no need to take RMD from a Roth.

Submitted by Jose Morales on Wed, 2015-05-13 23:04

“Stretch IRA” refers to structuring beneficiary designations to “stretch” out the IRA for as long as possible, first by naming a spouse as the primary beneficiary (who can assume the funds as their own upon the passing of the IRA owner) and then that spouse naming others as the beneficiary what is now their IRA.  Once the second spouse passes, unless they remarry and name the new spouse as beneficiary, the funds will have to be depleted from the inherited IRA by taking RMDs.  Inherited Roth IRAs most certainly do have an RMD requirement.

Submitted by Palvindr Sandhu on Wed, 2015-05-13 22:10

Bill TuttleThanks. VBINX looks very good. Any more good ideas.

Submitted by Alan - IRA critic on Wed, 2015-05-13 23:44

  • While beneficiary selection is the primary factor cited in most articles regarding “stretching” the IRAs, probably a greater factor in distributing more total dollars from the IRA is the discipline required by both the owner of the IRA prior to and during the RMD phase and the beneficiaries who inherit the IRA. RMDs are the only required distributions, but many people distribute additional amounts from the IRA. That will not result in the IRA being drained any sooner in most cases, but will substantially reduce the total amount of dollars distributed over the life of the IRA account. Therefore, stretching the IRA should be thought of in terms of the total dollars distributed by the IRA over it’s tenure as much as the year in which the IRA is finally drained.
  • If the administration proposal for a mandatory 5 year rule for non spouse beneficiaries ever becomes law, the beneficiary selection factor will be reduced to just naming a spouse as the sole IRA beneficiary. Currently, naming a grandchild as beneficiary may well produce more total dollars distributed from the IRA than naming a spouse, but the 5 year rule would put an end to that result.

 

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