When an owner establishes an IRA correctly, his or her beneficiaries may be able to take distributions over an extended period of time — stretching the IRA. As a result, the assets in the IRA may have an opportunity to grow and compound — tax-deferred in a traditional IRA and tax-free in a Roth IRA — for a longer period of time, which may increase the value of the inheritance. The distribution options available to beneficiaries depend, in part, on their relationship to the IRA owner.
 
Spousal beneficiaries: Among other options, spouses can treat inherited IRAs as their own accounts or roll IRA assets into their own IRAs, establishing new beneficiaries. When spouses move assets to their own IRAs, they can reset the beneficiary designations.
 
Non-spousal beneficiaries: In general, a non-spouse beneficiary has two choices. He/She may liquidate his/her accounts within five years of the death of the account owner or take distributions over his/her life expectancy.1
 
Non-individual beneficiaries: Many non-individual beneficiaries — such as estates, charities and some trusts — cannot stretch IRAs because they have no life expectancy.2
 
In addition, non-spouse and trust beneficiaries must make decisions about how to manage their IRA assets, as well as take any required minimum distribution, by specific dates.3
 
Stretching an IRA offers distinct advantages, but it can be a complex task. According to the Financial Planning Association,“If handled correctly, an inherited traditional IRA can be a cash windfall. But if you don’t follow Internal Revenue Service (IRS) regulations to a ‘T,’ you could end up paying big penalties and income taxes.”
 
Inherited IRAs can provide benefits over extended periods of time, if they are set up correctly and managed properly.
 
 
 

1Bankrate.com, 8 Ways to Go Wrong With an Inherited IRA, April 3, 2012
2WSJ.com, Inherited IRAs: a Sweet Deal, April 13, 2012
3Forbes, Five IRA Deadlines Every Smart Investor (Or Advisor) Should Know, September 13, 2012