IRA Rules

Archive for February, 2010

What is a stretch-out IRA? What are the stretch IRA rules?

A stretch-out IRA, or stretch IRA for short, is not a new type of IRA. A stretch out IRA or stretch IRA is a distribution and estate planning tool used by the owners and beneficiaries of:

• Traditional IRAs (including SEP, SAR-SEP, and Rollover IRAs),
• SIMPLE IRAs and
• Roth IRAs.

Individual retirement accounts or IRAs are growing, not just in number, but also in size. As individual retirement IRA accounts come to represent a substantial portion of an individual’s wealth, two questions arise about IRA rules and stretch IRA rules:

1. Who receives the IRA after the death of both the IRA owner and the designated beneficiary?
2. For how many years may IRA Distributions be stretched-out?

What are remainder beneficiaries in stretch out IRA or stretch IRA?

Under stretch Ira Rules, most Traditional IRA, SIMPLE IRA and Roth IRA can become Stretch-Out IRAs or Stretch IRA when the IRA beneficiaries to name individuals or entities (such as trusts or charities) to receive IRA Distributions that come due after the deaths of both the IRA owner and the designated beneficiary. Such individuals or entities are referred to as “remainder beneficiaries”.

FAQs about IRA beneficiaries under Ira Rules and Stretch Ira Rules

How many remainder beneficiaries can be named?

The Ira Rules and stretch Ira Rules allow only one remainder beneficiary can be named. It can be an individual, a charity or a trust.

Can a remainder beneficiary be changed?

Yes, just as a primary or contingent beneficiary can be changed at any time, so can a remainder beneficiary. The most recent beneficiary designation form on file with the IRA Custodian will be the one in effect.

How can a remainder beneficiary be changed?

The form to be used to change the remainder beneficiary, under the stretch Ira Rules, is called “The Designated Beneficiary Request for Distribution. Look for a Stretch-Out IRA form. This form is completed by the designated beneficiary and is included with other required documents, such as a certified Death Certificate, and Affidavit of Domicile, when the designated beneficiary takes possession of the IRA account.

• How Does A Stretch-Out IRA Work?
• Examples of Stretch-Out IRAs

Question: Regarding Roth IRAs. I once owned a home but am now renting. Can I use some of my roth money for money down

The rules say, “for a first home”. I wonder if that mean for the purchase of your first home (as in first home ever) or if that is referring to your first home as in your primary residence (vs putting that money toward a 2nd home/cottage)

Answer: To qualify for “first time home buyer” you can’t have owned a home anytime within the last 2 years. And the rules say that it is the same rules as for a regular IRA, which limits the amount to $10,000 during your lifetime.

Question: What is the maximum allowable distribution you can take on your IRA at age 75?

Answer: You should be taking the minimum, there is no max but a 50% penalty if you don’t take the minimum.

Tax Law, Real Estate & Credit Tips : IRA Distribution Penalties