The article below throws light on Stretching your IRA to future Generations with deferred assets that grow for years if your heirs don't bungle the set-up.
You've created a sizable stack of cash in your IRA account, but the money is of no need during your retirement, so you would like your kids to inherit your IRA.
What you want now is how to ensure that the assets in this tax-deferred account continue to grow for the benefit of your children, as long as possible, even into their retirement and those of their grandchildren.
Awesome! This is a fantastic cash plan for the future.
It is possible, yet very risky.
The beneficiaries must bet taught to follow some stringent rules of which they must not slip-up on else a sudden cash-out and the attendant tax-bill befalls them mercilessly without notice.
The below scenario is a good example of what happens when an IRA is stretched into generations.
"Dad has $100,000 in a traditional IRA, and dies at age 68.
His 58-year-old wife, who doesn't need the money, rolls over the cash into her own IRA.
But she doesn't touch it until she's 70 1/2, when the IRS requires her to take annual minimum distributions.
(At that age, her distributions can be spread over 27 years.
) She dies at 80, having netted, after taxes, $92,820.
Her daughter, Anne, who is 50, takes distributions based on her own life expectancy; by the time she dies at 77, she's received net income of $371,971.
Anne's son, the grandson of the original owner, pulls out $315,467 over nine years.
Total after-tax payout: $780,259 over 46 years".
Naturally, the above scenario is not as simple as it seems.
A lot of things can go wrong without the heir knowing how; the best thing to do is to thoroughly explain the dos and don'ts of a stretched generational IRA.
Bellow are two simple facts to bear in mind.
Roll over your company plan.
If preserving your retirement savings for your generations is important to you, then you must convert your 401(k) your work retirement plan into an IRA.
It is easier for IRA to be transferred to your heirs than any other form of retirement plan savings.
Designate your beneficiaries.
It does not matter whether is new or old IRA, ensure that you make clear who the primary beneficiary and follow up or contingent beneficiaries are.
If you name your grandchildren they IRA will last longer and generate more money, if there are no unexpected cash-outs due to unexpected bungling of the IRA rules.
So, you must as matter of necessity consult an expert to educate your heirs.
Remember that failure to name a beneficiary will automatically roll you IRA into your estate denying your heirs the benefit of tying payout to their own life expectancies.
For instance, your IRA must be cashed out by the beneficiary or beneficiaries of your estate within 5 years of your demise.