IRA / INDUVIDUAL
RETIREMENT ACCOUNT
RETIREMENT ACCOUNT
KNOWLEDGEFINANCIAL.COM
IRA / INDIVIDUAL RETIREMENT ACCOUNT. What is an IRA? And what does
it matter?
it matter?
“IRA stand for Individual
Retirement Account“. It’s
sole purpose is to help you save for
the old days by providing significant
tax advantages.
Have you thought about rolling your
Traditional IRAs from one financial
institution to another? Maybe you're
looking for higher returns, more
investment selections or better
service. If you roll over your
Traditional IRA, there are some
common mistakes you must avoid. If
you don't, you could face
unnecessary taxes and penalties. In
this article, we'll give you an
overview of IRA rollover rules and
help you avoid breaking them.
KNOWLEDGEFINANCIAL.COM
Retirement Account“. It’s
sole purpose is to help you save for
the old days by providing significant
tax advantages.
Have you thought about rolling your
Traditional IRAs from one financial
institution to another? Maybe you're
looking for higher returns, more
investment selections or better
service. If you roll over your
Traditional IRA, there are some
common mistakes you must avoid. If
you don't, you could face
unnecessary taxes and penalties. In
this article, we'll give you an
overview of IRA rollover rules and
help you avoid breaking them.
KNOWLEDGEFINANCIAL.COM
Roth IRA
An individual retirement plan that
bears many similarities to the
traditional IRA, but contributions are
not tax deductible and qualified
distributions are tax free.
Similar to other retirement plan
accounts, non-qualified distributions
from a Roth IRA may be subject to a
penalty upon withdrawal.
A qualified distribution is one that is
taken at least five years after the
taxpayer establishes his or her first
Roth IRA and when he or she is age
59.5, disabled, using the withdrawal
to purchase a first home (limit
$10,000), or deceased (in which
case the beneficiary collects).
Since qualified distributions from a
Roth IRA are always tax free, some
argue that a Roth IRA may be more
advantageous than a Traditional IRA.
KNOWLEDGEFINANCIAL.COM
An individual retirement plan that
bears many similarities to the
traditional IRA, but contributions are
not tax deductible and qualified
distributions are tax free.
Similar to other retirement plan
accounts, non-qualified distributions
from a Roth IRA may be subject to a
penalty upon withdrawal.
A qualified distribution is one that is
taken at least five years after the
taxpayer establishes his or her first
Roth IRA and when he or she is age
59.5, disabled, using the withdrawal
to purchase a first home (limit
$10,000), or deceased (in which
case the beneficiary collects).
Since qualified distributions from a
Roth IRA are always tax free, some
argue that a Roth IRA may be more
advantageous than a Traditional IRA.
KNOWLEDGEFINANCIAL.COM
Rollover
A Rollover is when
you do the following
Reinvesting funds from a mature
security into a new issue of the
same or a similar security.
Transferring the holdings of one
retirement plan to another without
suffering tax consequences.
A charge that is incurred by
investors who move their positions
to the following delivery date.
Assuming an option about to expire
is favourable to hold, you may
decide to buy or sell the later
expiring option.
Retirement plans may be moved in
order to forgo tax consequences
when moving from one company to
another. The distribution is reported
on IRS Form 1099-R and the rollover
contribution is reported on IRS Form
5498. Rollovers may be limited to
one per annum for each IRA and the
assets are generally made payable
to the retirement account holder.
The assets must then be deposited
to the receiving retirement account
within 60 days after the account
holder receives the assets.
KNOWLEDGEFINANCIAL.COM
A Rollover is when
you do the following
Reinvesting funds from a mature
security into a new issue of the
same or a similar security.
Transferring the holdings of one
retirement plan to another without
suffering tax consequences.
A charge that is incurred by
investors who move their positions
to the following delivery date.
Assuming an option about to expire
is favourable to hold, you may
decide to buy or sell the later
expiring option.
Retirement plans may be moved in
order to forgo tax consequences
when moving from one company to
another. The distribution is reported
on IRS Form 1099-R and the rollover
contribution is reported on IRS Form
5498. Rollovers may be limited to
one per annum for each IRA and the
assets are generally made payable
to the retirement account holder.
The assets must then be deposited
to the receiving retirement account
within 60 days after the account
holder receives the assets.
KNOWLEDGEFINANCIAL.COM
Traditional IRA
An individual retirement account (IRA)
that allows individuals to direct pre-tax
income, up to specific annual limits,
toward investments that can grow tax-
deferred (no capital gains or dividend
income is taxed).
Individual taxpayers are allowed to
contribute 100% of compensation up to
a specified maximum dollar amount to
their Traditional IRA. Contributions to
the Traditional IRA may be tax-
deductible depending on the taxpayer's
income, tax-filing status and other
factors.--KNOWLEDGEFINANCIAL.COM
Other variants of the IRA include the
Roth IRA, SIMPLE IRA, and SEP IRA.
Traditional IRAs are held by
custodians, such as commercial banks
and retail brokers, and investors can
place IRA funds into stocks, bonds,
funds and other financial assets
deemed fit by the custodian. Assets
such as real estate come with heavy
restrictions from the IRS, and may be
taxed differently.
When the individual begins to receive
distributions from a traditional IRA, the
income is treated as ordinary income
and may be subjected to income tax.
This differs from the Roth IRA, which
can offer tax-free distributions. For
people over the age of 50, higher
annual contribution limits may apply if
the IRA has been recently created or
under-funded in previous tax years.
Distributions are required to come out
of the account by the time the owner
reaches age 70.5.
An individual retirement account (IRA)
that allows individuals to direct pre-tax
income, up to specific annual limits,
toward investments that can grow tax-
deferred (no capital gains or dividend
income is taxed).
Individual taxpayers are allowed to
contribute 100% of compensation up to
a specified maximum dollar amount to
their Traditional IRA. Contributions to
the Traditional IRA may be tax-
deductible depending on the taxpayer's
income, tax-filing status and other
factors.--KNOWLEDGEFINANCIAL.COM
Other variants of the IRA include the
Roth IRA, SIMPLE IRA, and SEP IRA.
Traditional IRAs are held by
custodians, such as commercial banks
and retail brokers, and investors can
place IRA funds into stocks, bonds,
funds and other financial assets
deemed fit by the custodian. Assets
such as real estate come with heavy
restrictions from the IRS, and may be
taxed differently.
When the individual begins to receive
distributions from a traditional IRA, the
income is treated as ordinary income
and may be subjected to income tax.
This differs from the Roth IRA, which
can offer tax-free distributions. For
people over the age of 50, higher
annual contribution limits may apply if
the IRA has been recently created or
under-funded in previous tax years.
Distributions are required to come out
of the account by the time the owner
reaches age 70.5.
Common IRA Rollover
Mistakes
Have you thought about rolling your
Traditional IRAs from one financial
institution to another? Maybe you're
looking for higher returns, more
investment selections or better
service. If you roll over your Traditional
IRA, there are some common
mistakes you must avoid. If you don't,
you could face unnecessary taxes and
penalties. In this article, we'll give you
an overview of IRA rollover rules and
help you avoid breaking them.
60-Day Rule
After you receive the funds from your
IRA, you have 60 days to complete the
rollover to another IRA. If you do not
complete the rollover within the time
allowed or received a waiver or
extension of the 60-day period from
the IRS, the amount must be treated
as ordinary income in the IRS's eyes.
That means you must include the
amount as income on your tax return,
where any taxable amounts will be
taxed at your current ordinary income
tax rate. Plus, if you did not reach age
59.5 when the distribution occurred,
you'll face a 10% penalty on the
withdrawal
KNOWLEDGEFINANCIAL.COM
Mistakes
Have you thought about rolling your
Traditional IRAs from one financial
institution to another? Maybe you're
looking for higher returns, more
investment selections or better
service. If you roll over your Traditional
IRA, there are some common
mistakes you must avoid. If you don't,
you could face unnecessary taxes and
penalties. In this article, we'll give you
an overview of IRA rollover rules and
help you avoid breaking them.
60-Day Rule
After you receive the funds from your
IRA, you have 60 days to complete the
rollover to another IRA. If you do not
complete the rollover within the time
allowed or received a waiver or
extension of the 60-day period from
the IRS, the amount must be treated
as ordinary income in the IRS's eyes.
That means you must include the
amount as income on your tax return,
where any taxable amounts will be
taxed at your current ordinary income
tax rate. Plus, if you did not reach age
59.5 when the distribution occurred,
you'll face a 10% penalty on the
withdrawal
KNOWLEDGEFINANCIAL.COM
120-Day Exception for
First-Time Home-buyers
Taxable distributions of up to $10,000
from your IRAs are not subject to the
10% additional tax (early-distribution
penalty) if the IRA owner or a qualified
family member is a first-time
homebuyer and, within 120 days of
receipt, the IRA owner uses the amount
to pay for qualifying acquisition or
rebuilding costs for his or her own or
qualifying family member's principal
residence.
If the amount is not used because of a
cancellation or delay in the purchase or
construction of the residence, the
amount may be rolled over to the IRA
within 120 days instead of the usual 60
days.
Automatic Waiver for
Hardship
An individual may deliver distributed
assets to a financial institution and
intend the amount be deposited to his
or her retirement account as a rollover
contribution; but sometimes, because
of an error, the amount is not credited to
the retirement account within the 60-day
period. If this happens to you, you
receive an automatic extension of the
60-day period, providing all of the
following requirements are met:
The assets were delivered to your
financial institution within 60 days after
you had received the distribution.
You followed the procedural
requirements for rollover contributions
that were established by your financial
institution.
The amount was not deposited to your
retirement account because of an error
made by the financial institution.
The assets are deposited to your
retirement account within one year after
you received the distribution.
The transaction clearly would have
been a valid rollover contribution had
the financial institution followed your
instructions at the time of receipt.
Such errors can occur if you maintain
multiple accounts with your financial
institution, and a representative
inadvertently deposits the amount to the
wrong account, such as your regular
checking account. To be sure your
instructions are followed, check your
account statement for accuracy, and
contact your financial institution
immediately if you detect any errors.
KNOWLEDGEFINANCIAL.COM
First-Time Home-buyers
Taxable distributions of up to $10,000
from your IRAs are not subject to the
10% additional tax (early-distribution
penalty) if the IRA owner or a qualified
family member is a first-time
homebuyer and, within 120 days of
receipt, the IRA owner uses the amount
to pay for qualifying acquisition or
rebuilding costs for his or her own or
qualifying family member's principal
residence.
If the amount is not used because of a
cancellation or delay in the purchase or
construction of the residence, the
amount may be rolled over to the IRA
within 120 days instead of the usual 60
days.
Automatic Waiver for
Hardship
An individual may deliver distributed
assets to a financial institution and
intend the amount be deposited to his
or her retirement account as a rollover
contribution; but sometimes, because
of an error, the amount is not credited to
the retirement account within the 60-day
period. If this happens to you, you
receive an automatic extension of the
60-day period, providing all of the
following requirements are met:
The assets were delivered to your
financial institution within 60 days after
you had received the distribution.
You followed the procedural
requirements for rollover contributions
that were established by your financial
institution.
The amount was not deposited to your
retirement account because of an error
made by the financial institution.
The assets are deposited to your
retirement account within one year after
you received the distribution.
The transaction clearly would have
been a valid rollover contribution had
the financial institution followed your
instructions at the time of receipt.
Such errors can occur if you maintain
multiple accounts with your financial
institution, and a representative
inadvertently deposits the amount to the
wrong account, such as your regular
checking account. To be sure your
instructions are followed, check your
account statement for accuracy, and
contact your financial institution
immediately if you detect any errors.
KNOWLEDGEFINANCIAL.COM
Non-Automatic Waiver
Application
If you are unable to complete your
rollover contribution because of
certain circumstances beyond your
reasonable control, you can submit
an application to the IRS for a waiver
or extension of the 60-day rule.
When reviewing your application, the
IRS determines whether you meet
certain requirements by considering
the following:
Whether any mistakes were made by
your financial institution, other than
those described under this article's
section "Automatic Waiver for
Hardship" above.
Whether the inability to complete the
rollover was the result of death,
disability, hospitalization,
incarceration, restrictions imposed
by a foreign country or a postal error.
How the distributed amount was
used. For instance, if you received a
check for the distributed amount, the
IRS will want to know whether the
check was cashed.
How long it has been since the
distribution occurred.
Additionally the IRS will look at
whether you had any intention of
rolling over the distributed amount at
the time the withdrawal occurred. If
the IRS determines that you didn't
have this intention, your request for
waiver may not be approved.
Also, before applying for a waiver of
the 60-day rule, check to make sure
the amount in question is rollover
eligible. For instance, if the
distribution occurred from an IRA
from which another distribution was
rolled over during the 12 months
preceding the distribution in
question, this second distribution is
not rollover eligible.
In order to be considered for the
waiver, you must submit an
application for a private letter ruling
(PLR) to the IRS and pay the
applicable fee, which in 2005 is $95.
The procedure for applying for a PLR
is explained in the IRS publication
Revenue Procedure 2003-4.
After reviewing your application, the
IRS will issue a PLR to you indicating
whether your application is approved.
If it is, it will include the time limit
within which the rollover contribution
must be completed. If your
application is not approved and you
already deposited the amount to your
retirement account, you may need to
remove the amount as a return of
excess contribution (which you can
read more about in Correcting
Ineligible (Excess) IRA Contributions -
Part 3).
KNOWLEDGEFINANCIAL.COM
Application
If you are unable to complete your
rollover contribution because of
certain circumstances beyond your
reasonable control, you can submit
an application to the IRS for a waiver
or extension of the 60-day rule.
When reviewing your application, the
IRS determines whether you meet
certain requirements by considering
the following:
Whether any mistakes were made by
your financial institution, other than
those described under this article's
section "Automatic Waiver for
Hardship" above.
Whether the inability to complete the
rollover was the result of death,
disability, hospitalization,
incarceration, restrictions imposed
by a foreign country or a postal error.
How the distributed amount was
used. For instance, if you received a
check for the distributed amount, the
IRS will want to know whether the
check was cashed.
How long it has been since the
distribution occurred.
Additionally the IRS will look at
whether you had any intention of
rolling over the distributed amount at
the time the withdrawal occurred. If
the IRS determines that you didn't
have this intention, your request for
waiver may not be approved.
Also, before applying for a waiver of
the 60-day rule, check to make sure
the amount in question is rollover
eligible. For instance, if the
distribution occurred from an IRA
from which another distribution was
rolled over during the 12 months
preceding the distribution in
question, this second distribution is
not rollover eligible.
In order to be considered for the
waiver, you must submit an
application for a private letter ruling
(PLR) to the IRS and pay the
applicable fee, which in 2005 is $95.
The procedure for applying for a PLR
is explained in the IRS publication
Revenue Procedure 2003-4.
After reviewing your application, the
IRS will issue a PLR to you indicating
whether your application is approved.
If it is, it will include the time limit
within which the rollover contribution
must be completed. If your
application is not approved and you
already deposited the amount to your
retirement account, you may need to
remove the amount as a return of
excess contribution (which you can
read more about in Correcting
Ineligible (Excess) IRA Contributions -
Part 3).
KNOWLEDGEFINANCIAL.COM
Ensuring Correct Reporting
If you qualify for any of the exceptions explained here - that is, a
cancellation or delay in the purchase or construction of a first home is the
reason you didn't use the distributed amount within 120 days for first-home
costs; you were eligible for the automatic waiver within one year of the
distribution; or your application for extension to the IRS was approved -
you must report the amount on your tax return as nontaxable to exclude the
amount from your income and avoid the penalty.
This is done by including the amount on the applicable line of your tax return.
(For instance, if you use Form 1040, include the distributed amount on line
15a and input zero on line 15b.)
If you have failed to roll over the amount within the 60-day period and don't
qualify for these exceptions, you must include any taxable amount of the
distribution as income, and pay the applicable taxes.
Consult with your tax professional for assistance with determining the
taxable portion of your distribution and including the amount on your tax
return. Your tax or legal professional should also be able to help you with
determining your waiver eligibility and the application process.
One-Year Waiting Rule
Within one year after you distribute assets from your IRA and rollover any
part of that amount, you cannot make another rollover from the same IRA to
another (or the same) IRA.
For example, imagine that you have two IRAs - IRA-1 and IRA-2 - and you
make a tax-free rollover from IRA-1 into a new IRA (IRA-3).
Within one year of the distribution from IRA-1, you cannot make another
tax-free rollover from IRA-1 or from IRA-3 into another IRA. However, you
could roll funds out of IRA-2 into any other IRA because you did not roll
money into or out of that account within the previous year.
The once-a-year limit on IRA-to-IRA rollovers does not apply to eligible
rollover distributions from an employer plan. Therefore, you can roll over
more than one distribution from the same qualified plan, 403(b) or 457(b)
account within a year. (Note: This one year limit does not apply to rollovers
from Traditional IRAs to Roth IRAs.
Same Property Rule
Your rollover from one IRA or to another IRA must consist of the same
property. This
means that you cannot take cash distributions from your IRA, purchase
other assets with the cash, and then roll those assets over into a new (or
the same) IRA. Should this occur, the IRS would consider the cash
distribution from the IRA as ordinary income.
Here's a hypothetical example of how someone might violate the same
property rule:
An entrepreneur, age 57, has decided to roll over her IRA from one financial
institution another. However, she wants to use her IRA assets to purchase
shares of certain company's stock. She takes a portion of the funds she
received from her IRA, buys the shares and places the remaining cash in a
new IRA. Then, she deposits the shares of the stock she had purchased into
the same IRA to receive tax-deferred treatment.
The IRS would deem the portion of the distribution used to purchase the
stock as ordinary income; therefore, the entrepreneur would owe taxes at
her current ordinary income tax rate on any taxable portion of the stocks
that were rolled over. Furthermore, because she is younger than 59.5, the
IRS would assess a 10% penalty on any taxable portion of the amount used
to purchase the stocks.
Caution: When Not to Use a Rollover
If you are simply moving your IRA from one financial institution to another
and you do not need to use the funds, then you should consider using the
transfer method, instead of a rollover. A transfer is non-reportable, and can
be done for an unlimited number of times during any period. A rollover
leaves room for errors, including missing the 60-day deadline, losing the
check, and you are limited to the once per 12-month rule discussed earlier.
Additional points
You can roll over funds from any of your own Traditional IRAs, but you can
also roll over funds to your Traditional IRA from the following retirement
plans:
KNOWLEDGEFINANCIAL.COM
If you qualify for any of the exceptions explained here - that is, a
cancellation or delay in the purchase or construction of a first home is the
reason you didn't use the distributed amount within 120 days for first-home
costs; you were eligible for the automatic waiver within one year of the
distribution; or your application for extension to the IRS was approved -
you must report the amount on your tax return as nontaxable to exclude the
amount from your income and avoid the penalty.
This is done by including the amount on the applicable line of your tax return.
(For instance, if you use Form 1040, include the distributed amount on line
15a and input zero on line 15b.)
If you have failed to roll over the amount within the 60-day period and don't
qualify for these exceptions, you must include any taxable amount of the
distribution as income, and pay the applicable taxes.
Consult with your tax professional for assistance with determining the
taxable portion of your distribution and including the amount on your tax
return. Your tax or legal professional should also be able to help you with
determining your waiver eligibility and the application process.
One-Year Waiting Rule
Within one year after you distribute assets from your IRA and rollover any
part of that amount, you cannot make another rollover from the same IRA to
another (or the same) IRA.
For example, imagine that you have two IRAs - IRA-1 and IRA-2 - and you
make a tax-free rollover from IRA-1 into a new IRA (IRA-3).
Within one year of the distribution from IRA-1, you cannot make another
tax-free rollover from IRA-1 or from IRA-3 into another IRA. However, you
could roll funds out of IRA-2 into any other IRA because you did not roll
money into or out of that account within the previous year.
The once-a-year limit on IRA-to-IRA rollovers does not apply to eligible
rollover distributions from an employer plan. Therefore, you can roll over
more than one distribution from the same qualified plan, 403(b) or 457(b)
account within a year. (Note: This one year limit does not apply to rollovers
from Traditional IRAs to Roth IRAs.
Same Property Rule
Your rollover from one IRA or to another IRA must consist of the same
property. This
means that you cannot take cash distributions from your IRA, purchase
other assets with the cash, and then roll those assets over into a new (or
the same) IRA. Should this occur, the IRS would consider the cash
distribution from the IRA as ordinary income.
Here's a hypothetical example of how someone might violate the same
property rule:
An entrepreneur, age 57, has decided to roll over her IRA from one financial
institution another. However, she wants to use her IRA assets to purchase
shares of certain company's stock. She takes a portion of the funds she
received from her IRA, buys the shares and places the remaining cash in a
new IRA. Then, she deposits the shares of the stock she had purchased into
the same IRA to receive tax-deferred treatment.
The IRS would deem the portion of the distribution used to purchase the
stock as ordinary income; therefore, the entrepreneur would owe taxes at
her current ordinary income tax rate on any taxable portion of the stocks
that were rolled over. Furthermore, because she is younger than 59.5, the
IRS would assess a 10% penalty on any taxable portion of the amount used
to purchase the stocks.
Caution: When Not to Use a Rollover
If you are simply moving your IRA from one financial institution to another
and you do not need to use the funds, then you should consider using the
transfer method, instead of a rollover. A transfer is non-reportable, and can
be done for an unlimited number of times during any period. A rollover
leaves room for errors, including missing the 60-day deadline, losing the
check, and you are limited to the once per 12-month rule discussed earlier.
Additional points
You can roll over funds from any of your own Traditional IRAs, but you can
also roll over funds to your Traditional IRA from the following retirement
plans:
KNOWLEDGEFINANCIAL.COM
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METHODS, AND TECHNIQUES. A BETTER
WAY TO BUILD WEALTH! When it comes
to reliable investments, real estate
investing is the best wealth-builder in the
world.
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TO INVEST IN TODAY'S MARKET FOR A
BETTER TOMORROW
STOCK MARKET: A WAY TO INVEST AND
MULTIPLY YOUR MONEY. THE MARKET
HAS THOUSANDS OF COMPANIES TO
BUY STOCKS, Mutual Funds, Bond Funds,
Annuity. The market in which shares are
issued and traded either through
exchanges or over-the-counter markets.
REITs= REAL ESTATE INVESTMENT
TRUST: A GREAT WAY TO INVEST IN REAL
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IN THE WORLD TO INVEST AND GET
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PREMIUM? LEARN ABOUT THE 5
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Long-term care insurance?
Is a long-term care
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SOCIAL SECURITY
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ADVANTAGE OF LIFE INSURANCE
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ADVANTAGES & BENEFITS OF LIFE INSURANCE
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policyholder's obligation to pay any further premiums should
he or she become seriously ill or disabled.
Life Insurance. ---- SOUTH FL. CALL A REPRESENTATIVE AT:
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Life insurance is a wealth-generating tool - it eases your surviving family's financial
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Life insurance payable, can provide a surviving spouse, children, and other
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repay debt, and and fund education tuition costs.
-------KNOWLEDGEFINANCIAL.COM
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Life Insurance
A protection against the loss of income that would result if the insured No Longer
Exist. The named beneficiary receives the proceeds and is thereby safeguarded from
the financial impact of the absent of the insured. --------KNOWLEDGEFINANCIAL.COM
The goal of life insurance is to provide a measure of financial security for your family
after you die. So, before purchasing a life insurance policy, you should consider your
financial situation and the standard of living you want to maintain for your
dependents or survivors.
It is prudent to re-evaluate your life insurance policies annually or when you
experience a major life event like marriage, divorce, the birth or adoption of a child,
or purchase of a major item such as a house or business.
786-709-6577
Life insurance is a wealth-generating tool - it eases your surviving family's financial
burdens in your absence and also provides periodic income, which takes care of family
needs.
Life insurance payable, can provide a surviving spouse, children, and other
dependents with the funds necessary to maintain their standards of living, can help
repay debt, and and fund education tuition costs.
-------KNOWLEDGEFINANCIAL.COM
Talk with an insurance Representative who offers policies from companies whose
financial strength is ranked high by rating agencies.
SOUTH FLORIDA, CALL THE AGENT AT: 786-709-6577
Life Insurance
A protection against the loss of income that would result if the insured No Longer
Exist. The named beneficiary receives the proceeds and is thereby safeguarded from
the financial impact of the absent of the insured. --------KNOWLEDGEFINANCIAL.COM
The goal of life insurance is to provide a measure of financial security for your family
after you die. So, before purchasing a life insurance policy, you should consider your
financial situation and the standard of living you want to maintain for your
dependents or survivors.
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Stretch IRAA stretch IRA is a distribution strategy that can extend the
tax-deferred compounding of your IRA assets across multiple generations. .
Want To Leave Money To Your Family? Stretch Your IRA
------KNOWLEDGEFINANCIAL.COM
When looking into retirement investing options, you may have come across
the term 'stretch IRA'. This is actually not a category of IRA, such as a
Traditional, Roth, SEP or SIMPLE IRA; instead, it is more like a
financial-planning or wealth-management concept that acts as a provision
of the IRAs many financial institutions offer. A financial institution may not
refer to their IRA product by this specific term, so when discussing these
IRAs, it may make sense to describe the concept.
The stretch provision is one you might be interested in if you are using your
IRA primarily to provide for your beneficiaries. In this article, we'll discuss
the stretch concept and the factors that determine whether an IRA includes
a stretch provision.
The Stretch Concept
While the basic intent of having a retirement account is to save for and
finance retirement years, many individuals have other financial resources
and prefer to leave the tax-deferred (or tax-free, in the case of a Roth IRA)
assets to their beneficiaries. Whether the beneficiaries can continue to
enjoy tax-deferred or tax-free growth on the retirement assets, however,
depends on the provisions stated in the IRA plan document.
--------KNOWLEDGEFINANCIAL.COM
Some IRA provisions may require the beneficiary to distribute the assets
soon after the IRA owner's death. Some will allow the beneficiary to take
distributions over his or her life expectancy as provided by the Internal
Revenue Code.
KNOWLEDGEFINANCIAL.COM
tax-deferred compounding of your IRA assets across multiple generations. .
Want To Leave Money To Your Family? Stretch Your IRA
------KNOWLEDGEFINANCIAL.COM
When looking into retirement investing options, you may have come across
the term 'stretch IRA'. This is actually not a category of IRA, such as a
Traditional, Roth, SEP or SIMPLE IRA; instead, it is more like a
financial-planning or wealth-management concept that acts as a provision
of the IRAs many financial institutions offer. A financial institution may not
refer to their IRA product by this specific term, so when discussing these
IRAs, it may make sense to describe the concept.
The stretch provision is one you might be interested in if you are using your
IRA primarily to provide for your beneficiaries. In this article, we'll discuss
the stretch concept and the factors that determine whether an IRA includes
a stretch provision.
The Stretch Concept
While the basic intent of having a retirement account is to save for and
finance retirement years, many individuals have other financial resources
and prefer to leave the tax-deferred (or tax-free, in the case of a Roth IRA)
assets to their beneficiaries. Whether the beneficiaries can continue to
enjoy tax-deferred or tax-free growth on the retirement assets, however,
depends on the provisions stated in the IRA plan document.
--------KNOWLEDGEFINANCIAL.COM
Some IRA provisions may require the beneficiary to distribute the assets
soon after the IRA owner's death. Some will allow the beneficiary to take
distributions over his or her life expectancy as provided by the Internal
Revenue Code.
KNOWLEDGEFINANCIAL.COM
STRETCH IRA --- WHAT IS IT STRETCH IRA? -----KNOWLEDGEFINANCIAL.COM
The "stretch IRA" is not a new IRA account on the market, or even a new
investment concept, it is simply a wealth transfer method that allows you the
potential to "stretch" your IRA over several future generations. As an IRA
owner, you are typically required to take minimum distributions from your IRA
at age 70.5 based on an IRS life expectancy table.
If you are fortunate enough to inherit someone else's IRA, you will be required
to take minimum distributions each year from the IRA account based on your
life expectancy figure - regardless of your age.
IRA accounts at death of the owner pass by contract or beneficiary
designation. It is typical practice for most IRA owners to name their spouse as
the primary IRA beneficiary and their children as the contingent beneficiaries.
While there is nothing wrong with this strategy, it might require the spouse to
take more taxable income from the IRA than what he/she really needs when
he/she inherits the IRA.
If income needs are not an issue for the spouse and children-, then naming
younger beneficiaries (such as grandchildren or great-grandchildren) allows
you to stretch the value of the IRA out over generations. This is possible
because grandchildren are younger and their required minimum distribution
(RMD) figure will be much less at a younger age
-------KNOWLEDGEFINANCIAL.COM
The "stretch IRA" is not a new IRA account on the market, or even a new
investment concept, it is simply a wealth transfer method that allows you the
potential to "stretch" your IRA over several future generations. As an IRA
owner, you are typically required to take minimum distributions from your IRA
at age 70.5 based on an IRS life expectancy table.
If you are fortunate enough to inherit someone else's IRA, you will be required
to take minimum distributions each year from the IRA account based on your
life expectancy figure - regardless of your age.
IRA accounts at death of the owner pass by contract or beneficiary
designation. It is typical practice for most IRA owners to name their spouse as
the primary IRA beneficiary and their children as the contingent beneficiaries.
While there is nothing wrong with this strategy, it might require the spouse to
take more taxable income from the IRA than what he/she really needs when
he/she inherits the IRA.
If income needs are not an issue for the spouse and children-, then naming
younger beneficiaries (such as grandchildren or great-grandchildren) allows
you to stretch the value of the IRA out over generations. This is possible
because grandchildren are younger and their required minimum distribution
(RMD) figure will be much less at a younger age
-------KNOWLEDGEFINANCIAL.COM
STRETCH IRA -------KNOWLEDGEFINANCIAL.COM
Primary Benefits of the Stretch Concept
Tax Deferral
The primary benefit of the stretch provision is that it allows the beneficiaries
to defer paying taxes on the account balance and to continue enjoying
tax-deferred and/or tax-free growth as long as possible. Without the stretch
provision, beneficiaries may be required to distribute the full account
balance in a period much shorter than the benefirciary's life expectancy,
possibly causing them to be in a higher tax bracket and/or resulting in
significant taxes on the withdrawn amount.
Flexibility
Generally, the stretch option is not a binding provision, which means the
beneficiary may choose to discontinue it at anytime by distributing the entire
balance of the inherited IRA. This allows the beneficiary some flexibility
should he or she need to distribute more than the minimum required amount.
Benefits for Spouses ---------KNOWLEDGEFINANCIAL.COM
A spouse beneficiary is allowed to treat the inherited IRA as his or her own.
When the spouse elects to do this, the stretch concept is not an issue, as the
spouse beneficiary is given the same status and options as the original IRA
owner. However, should the spouse choose to treat the IRA as an inherited
IRA, then the stretch rule could apply.
Conclusion
If you are interested in having the stretch concept apply to your IRA, consult
your current IRA provider or financial institution. If they seem unfamiliar with
the term, ask specific questions: will the beneficiary be allowed to take
distributions over a life-expectancy period? Will the beneficiary be allowed to
designate second- and subsequent-generation beneficiaries? If the answer
to these questions is yes, then you are able to use the stretch concept with
the IRA. ----KNOWLEDGEFINANCIAL.COM
Primary Benefits of the Stretch Concept
Tax Deferral
The primary benefit of the stretch provision is that it allows the beneficiaries
to defer paying taxes on the account balance and to continue enjoying
tax-deferred and/or tax-free growth as long as possible. Without the stretch
provision, beneficiaries may be required to distribute the full account
balance in a period much shorter than the benefirciary's life expectancy,
possibly causing them to be in a higher tax bracket and/or resulting in
significant taxes on the withdrawn amount.
Flexibility
Generally, the stretch option is not a binding provision, which means the
beneficiary may choose to discontinue it at anytime by distributing the entire
balance of the inherited IRA. This allows the beneficiary some flexibility
should he or she need to distribute more than the minimum required amount.
Benefits for Spouses ---------KNOWLEDGEFINANCIAL.COM
A spouse beneficiary is allowed to treat the inherited IRA as his or her own.
When the spouse elects to do this, the stretch concept is not an issue, as the
spouse beneficiary is given the same status and options as the original IRA
owner. However, should the spouse choose to treat the IRA as an inherited
IRA, then the stretch rule could apply.
Conclusion
If you are interested in having the stretch concept apply to your IRA, consult
your current IRA provider or financial institution. If they seem unfamiliar with
the term, ask specific questions: will the beneficiary be allowed to take
distributions over a life-expectancy period? Will the beneficiary be allowed to
designate second- and subsequent-generation beneficiaries? If the answer
to these questions is yes, then you are able to use the stretch concept with
the IRA. ----KNOWLEDGEFINANCIAL.COM
WHAT IS A STRETCH IRA? ---KNOWLEDGEFINANCIAL.COM
A stretch IRA is a distribution strategy that can extend the tax-deferred compounding of your
IRA assets across multiple generations.
WHEN SHOULD YOU USE A STRETCH IRA?
If you do not need all the assets in your IRA to cover
How the Stretch Concept Works
As we just stated, the stretch concept allows an IRA to be passed on from generation to
generation. However, in doing so, the beneficiary must follow certain rules to ensure he or she
doesn't owe the IRS excess-accumulation penalties, which are caused by failing to withdraw
the minimum amount each year. Let's explore this further with an example.
Example
Tom's designated beneficiary is his son Dick. Tom dies in 2008, when he is age 70 and Dick
is age 40. Dick's life expectancy is 42.7 (determined in the year following the year Tom died,
when Dick is age 41). This means that Dick is able to stretch distributions over a period of 42.7
years. Dick elects to stretch distributions over his life expectancy, and he must take his first
distribution by December 31, 2009, the year-end following the year Tom died.
To determine the minimum amount that must be distributed, Dick must divide the balance on
December 31, 2008, by 42.7. If Dick withdraws less than the minimum amount, the shortfall
will be subject to the excess-accumulation penalty. To determine the minimum amount he
must distribute for each subsequent year, Dick must subtract 1 from his life expectancy of the
previous year. He must then use that new life-expectancy factor as a divisor of the previous
year-end balance.
The IRA plan document allowed Dick to designate a second-generation beneficiary, and he
designated his son Harry. If Dick were to die in 2013, when his remaining life expectancy is
38.7 (42.7 - 4), Harry could continue distributions for Dick's remaining life expectancy. It is
important to note that only the first-generation beneficiary's life expectancy is factored into
the distribution equation; therefore, Harry's age is not relevant.
In this example, Tom could have chosen to designate Harry as his own beneficiary, resulting
in a longer stretch period. In such a case, Harry would be the first-generation beneficiary, and
his life expectancy instead of Dick's would be factored into the equation.
KNOWLEDGEFINANCIAL.COM
A stretch IRA is a distribution strategy that can extend the tax-deferred compounding of your
IRA assets across multiple generations.
WHEN SHOULD YOU USE A STRETCH IRA?
If you do not need all the assets in your IRA to cover
How the Stretch Concept Works
As we just stated, the stretch concept allows an IRA to be passed on from generation to
generation. However, in doing so, the beneficiary must follow certain rules to ensure he or she
doesn't owe the IRS excess-accumulation penalties, which are caused by failing to withdraw
the minimum amount each year. Let's explore this further with an example.
Example
Tom's designated beneficiary is his son Dick. Tom dies in 2008, when he is age 70 and Dick
is age 40. Dick's life expectancy is 42.7 (determined in the year following the year Tom died,
when Dick is age 41). This means that Dick is able to stretch distributions over a period of 42.7
years. Dick elects to stretch distributions over his life expectancy, and he must take his first
distribution by December 31, 2009, the year-end following the year Tom died.
To determine the minimum amount that must be distributed, Dick must divide the balance on
December 31, 2008, by 42.7. If Dick withdraws less than the minimum amount, the shortfall
will be subject to the excess-accumulation penalty. To determine the minimum amount he
must distribute for each subsequent year, Dick must subtract 1 from his life expectancy of the
previous year. He must then use that new life-expectancy factor as a divisor of the previous
year-end balance.
The IRA plan document allowed Dick to designate a second-generation beneficiary, and he
designated his son Harry. If Dick were to die in 2013, when his remaining life expectancy is
38.7 (42.7 - 4), Harry could continue distributions for Dick's remaining life expectancy. It is
important to note that only the first-generation beneficiary's life expectancy is factored into
the distribution equation; therefore, Harry's age is not relevant.
In this example, Tom could have chosen to designate Harry as his own beneficiary, resulting
in a longer stretch period. In such a case, Harry would be the first-generation beneficiary, and
his life expectancy instead of Dick's would be factored into the equation.
KNOWLEDGEFINANCIAL.COM
HOW DO YOU STRETCH A ROTH IRA?
Stretching a Roth IRA is similar to stretching a traditional IRA. If you name your
spouse as beneficiary of your Roth IRA, he or she can roll the balance into his or
her own Roth IRA when you die and name a younger beneficiary. With a
stretched Roth IRA, however, your spouse is never required to take RMDs.
That means the assets may continue their tax-deferred compounding longer
than in a stretched traditional IRA. When your spouse dies, his or her beneficiary
must begin taking RMDs based on his or her life expectancy. Because they will
be taken from a Roth IRA, those distributions (if qualified) will be tax-free.2
Stretching a Roth IRA is similar to stretching a traditional IRA. If you name your
spouse as beneficiary of your Roth IRA, he or she can roll the balance into his or
her own Roth IRA when you die and name a younger beneficiary. With a
stretched Roth IRA, however, your spouse is never required to take RMDs.
That means the assets may continue their tax-deferred compounding longer
than in a stretched traditional IRA. When your spouse dies, his or her beneficiary
must begin taking RMDs based on his or her life expectancy. Because they will
be taken from a Roth IRA, those distributions (if qualified) will be tax-free.2
---ESTATE TAX EXEMPTION----
The estate tax in the United States is a tax imposed on the transfer of the
"taxable estate" of a deceased person, whether such property is transferred via
a will, according to the state laws of intestacy or otherwise made as an incident
of the death of the owner, such as a transfer of property from an intestate estate
or trust,
or the payment of certain life insurance benefits or financial account sums to
beneficiaries. The estate tax is one part of the Unified Gift and Estate Tax
system in the United States.
The other part of the system, the gift tax, imposes a tax on transfers of property
during a person's life; the gift tax prevents avoidance of the estate tax should a
person want to give away his/her estate.
In addition to the federal government, many states also impose an estate tax,
with the state version called either an estate tax or an inheritance tax.
Since the 1990s, opponents of the tax have used the pejorative term "death tax."
The equivalent tax in the United Kingdom has always been referred to as
"death duties."
If an asset is left to a spouse or a charitable organization, the tax usually does
not apply.
''Estate tax in the United States''--
The estate tax in the United States is a tax imposed on the transfer of the
"taxable estate" of a deceased person, whether such property is transferred via
a will, according to the state laws of intestacy or otherwise made as an incident
of the death of the owner, such as a transfer of property from an intestate estate
or trust,
or the payment of certain life insurance benefits or financial account sums to
beneficiaries. The estate tax is one part of the Unified Gift and Estate Tax
system in the United States.
The other part of the system, the gift tax, imposes a tax on transfers of property
during a person's life; the gift tax prevents avoidance of the estate tax should a
person want to give away his/her estate.
In addition to the federal government, many states also impose an estate tax,
with the state version called either an estate tax or an inheritance tax.
Since the 1990s, opponents of the tax have used the pejorative term "death tax."
The equivalent tax in the United Kingdom has always been referred to as
"death duties."
If an asset is left to a spouse or a charitable organization, the tax usually does
not apply.
''Estate tax in the United States''--
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