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RMDs & Stretch Strategies for IRAs

A Required Minimum Distribution (RMD) is a life expectancy based forced distribution designed to prevent tax-deferred retirement savings accounts from becoming indefinite tax shelters. RMDs are generally based on the beneficiary’s actuarial life expectancy and can be more advantageous for younger the beneficiary, if properly planned and structured.

The key concepts pertaining to RMDs that every client should know include:

  • Required Beginning Date (RBD)
  • Calculating the RMD
  • Penalty for Missing an RMD
  • Form of Distribution
  • Inherited IRAs

At the Law Office of Eric P. Zine we will help you structure an IRA inheritance through various types of trusts and strategies, to “stretch” an IRA over the beneficiaries’ life expectancy, while conforming to the strict RMD rules.

The Stretch IRA is a wealth transfer method that gives t you (and your beneficiaries) the ability to minimize taxes and increase or “stretch” your IRA’s tax-deferred growth potential over several future generations. In the short run, you would take your RMDs, beginning the year after you reach 70 ½ (age for mandatory RMDs), also minimizing income taxes. If income needs are not an issue for your spouse and children, then naming your younger grandchildren or great-grandchildren beneficiaries may allow you to stretch the value of the IRA out over generations.

By limiting the forced income tax on mandatory income distributions, the “stretch” strategy will, in essence, prolong the timetable for required distributions, allowing IRA assets to continue to compound tax-deferred for many additional years; preserving the assets in the account for future generations.

Failure to adhere to the convoluted tax issues and distribution rules, however, may result in avoidable, taxable distributions and excess taxes and penalties, so careful and insightful planning is imperative.

To learn more about Requirement Minimum Distributions for IRAs or any other aspect of Estate Planning or Elder Law, call Attorney Zine at 781.930.3003 or e-mail us to schedule a free consultation.