Alert
Close

Think you know AARP? What you don't know about us may surprise you. Discover all the 'Real Possibilities'

Highlights

Open

Contests and
Sweeps

Dream Vacation Sweepstakes

10 weeks. 10 amazing trips. Seize your chance to win!
See official rules. 

Driver Safety

Piggy bank on the road - AARP Driver Safety

Take the new AARP Smart Driver Course!

PROGRAMS

AARP Foundation Tax-Aide

You can get free, face-to-face tax assistance nationwide.

Money Matters Tip Sheets

Download and print out these PDFs to help with your financial matters.

AARP Books

Visit the Money Section

Enjoy titles on retirement, Social Security, and becoming debt-free.

webinars

Learn From the Experts

Sign up now for an upcoming Money webinar or find materials from a past session. 

Jobs You Might Like

most popular
articles

Viewed

Commented

Retirement

How to Stretch an IRA

Future generations can profit, but many beneficiaries take the money and run

Robotic arms stretching US dollar bill

Stretching an inherited IRA

If you're the person who is willed an IRA, here's what you need to do to make it stretch.

"When you inherit an IRA, the first rule is, touch nothing," says Slott. "If you roll the inherited IRA into your own IRA or even move it to another institution, the money instantly becomes taxable."

As the beneficiary, you must retitle the IRA with your name and the deceased's name. For example, "John Doe IRA (deceased Jan. 1, 2010) for the benefit of John Doe Jr., beneficiary."

You must begin withdrawals of the required minimum distribution (RMD) starting on Dec. 31 of the year after you inherit. They'll be taxable. Their amount is calculated by dividing the IRA's balance by the number of years of your life expectancy as determined by the IRS. The younger you are, the smaller the RMD.

If you want to stretch the IRA to a third generation and potentially make the account bigger, take out only the RMDs and try to invest the remaining principal wisely. As Slott puts it, you have to decide if you want the IRA to grow: "Do you want a little twig or a big tree?" he says.


Not all IRAs stretch

But not every stretch IRA is destined to become a tree. Reyes says that conditions that determine an account's continued growth may change. For example, IRS rules may evolve, returns on principal may vary, or a beneficiary may take out more than the minimum.

"Nine out of 10 beneficiaries want to take the money and run," says Reyes, so "stretching" never gets started.

A stretch IRA "looks good on paper," he says, "but too often doesn't translate into reality."

Cathie Gandel is a freelance writer based in Bridgehampton, N.Y.

Also of interest: Who inherits the cottage by the lake? >>

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts

Processing

Please wait...

progress bar, please wait

Tell Us WhatYou Think

Please leave your comment below.

your money

Discounts & Benefits

Explore Your Learning Possiblities