How to Make a Stretch IRA

A stretch IRA is a great way to extend personal IRA investments to future generations. However, establishing an IRA can be a bit perplexing as it is without thinking about how to stretch it to future generations beyond your personal retirement. Follow these guidelines to help you make a stretch IRA and secure the future for your children or grandchildren.

Instructions

1. Establish an individual IRA. Contact an accountant to discuss vesting options for an initial IRA. Keep this normal IRA for a few months before moving on to establish a stretch system.

2. Contact your IRA manager or account and tell them you would like to establish a beneficiary to your IRA. Sit down and figure out who will receive specific portions of your IRA and over what period of time.

3. Make provisions such as whether the beneficiary can choose to translate your IRA disbursement to a separate IRA account upon your death or whether it must stay tied to your IRA account. Decide the distribution time for the IRA funds, you can establish a one time disbursement or divide it over a period of years.

4. Discuss whether you'd like to make separate IRA trust accounts connected to your existing IRA or if it will stay mainly connected to your IRA benefits. Establish any other provisions with your financial advisor or accountant and indicate them in the writing of your IRA account.

5. Inform your heirs of your decision to extend your IRA funds. Give them a say in the decision as to whether it is managed primarily from your IRA account or through separate trust accounts that can be transferred upon disbursement.

Tips & Warnings

• Realistically, analyze your retirement to determine whether a stretch IRA is right for you. Basically, you need enough money to both fund your retirement and at least partially fund retirement/expenses of a future generation.

• Ask your accountant about the tax repercussions or benefits of establishing a stretch IRA.

Resources

• Read some answers to questions about stretch IRAs.
• Use this stretch IRA calculator to determine your personal needs.
• Start a stretch IRA account with Merrill Lynch.