The process of retirement planning can involve contributing into an individual retirement account over an extended period of time. With these accounts you can accumulate resources that you can utilize as a financial underpinning during your senior years.
With the traditional IRA you make contributions before paying taxes. As a result, when you receive distributions eventually they are subject to taxation. Similarly, if there was a remainder in the account after you passed away your beneficiary would have to pay taxes on his or her distributions.
However, the beneficiary could choose to “stretch” the individual retirement account. This would entail accepting only the required minimum distribution as it is defined by the Internal Revenue Service.
By taking as little as possible annually your beneficiary would be maximizing the tax deferral advantages that are inherently a part of individual retirement accounts.
You are required to take distributions yourself when you reach the age of 70.5 with traditional IRAs. However, if you have a Roth IRA you do not have to take distributions at all.
Therefore, you could choose to use a Roth IRA as an estate planning tool as you intentionally leave the resources untouched because you want your beneficiary to be able to inherit them and then stretch the distributions to gain tax advantages.
This is a brief overview of the concept of the stretch IRA. If you are interested in learning more simply take a moment to set up a consultation with a licensed and experienced financial planning attorney who has a thorough understanding of tax laws.
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