When we first think of estate planning tools, we tend to think of Wills, trusts and financial directives – but we forget about one very useful tool that’s often just sitting on the back-burner: your Individual Retirement Annuity (IRA).
As a retirement planning tool, IRAs are well-known for their benefits, including IRA assets being compounded on a tax-deferred or even tax-free basis (Roth IRAs). For those of us who are fortunate enough not to require their IRA to fund their retirement, however, it can be used to the benefit of your heirs by changing it into a so-called “stretch IRA”.
How Can I Change My IRA into a Stretch IRA?
This is simply a matter of naming a beneficiary who will take many years before they qualify for the benefits – a much younger spouse, a child or even a grandchild. For minors, it’s best to speak to your estate planning attorney about developing a trust that allows this strategy, as it gives you more control over the use and distribution of the IRA funds). Your spouse is able to roll the funds over to their own IRA after they inherit, which enables the funds to keep growing (tax-deferred or tax-free) until they decide to utilize them. As a result of the compound growth on these accounts, the longer the benefits are deferred, the more substantial they will become. This could form a significant lump sum for your loved one, allowing them to:
- Fund their eventual retirement
- Take a lump sum distribution of the IRA’s balance
- Withdraw the funds by the end of the year of the 5th anniversary of your death
- Withdraw the funds over your “remaining” life expectancy as cucullated by the IRS
- Or hold the funds in an inherited IRA to spread the required monthly distributions over their own life expectancy. (Often the choice that maximizes the benefits of this strategy).
Is this the Right Estate Planning Strategy for You? Speak to Your Estate Planning Attorney in New Jersey
At Sedita, Campisano and Campisano in New Jersey, estate planning attorney Frank Campisano is ready to assist you with all your estate planning needs – whether you need to make a business succession plan, Last Will and Testament, Power of Attorney, a Living trust or to minimize inheritance tax on your estate.
Contact us today and let us deliver expert estate planning advice to take care of all your wishes – whether your needs are big or small. For more information, please visit our website at https://www.scclegal.com/