Do you have money in an IRA, ROTH, 401k, 403b, 457, TSP, TSA, or other qualified plan?
Are you still working/employed?
You typically cannot set up a Stretch IRA for a non-IRA qualified plan while you are still working for the company sponsor of that plan. However, when you terminate service (or terminated service with a previous company), you can rollover tax-deferred the lump-sums into IRA's to set up the stretch.
Using the right tools.
Although there are many investment options (e.g. stocks, bonds, mutual funds, CD's, etc.) for a Stretch IRA, your heirs can run into several problems at death. First, many brokerage firms, mutual fund companies, and/or banks do not support the Stretch. And Second, your heirs typically have to elect to stretch. Even touching one penny of the money without electing will kill the Stretch Opportunity.
In my experience the safest, most secure, and easiest way to set up a Stretch IRA before death is a fixed indexed annuity. There are several reasons:
1. The investment itself is no-risk, with liquidity options and a mid-range return potential.
2. Most insurance companies make the fixed indexed annuity IRA automatically stretch-capable. So your heirs don't have to elect and go through the steps of the election.
3. A Fixed Indexed Annuity typically does not have annual fees, costs, or disbursement commissions which makes it perfect for lifetime distributions.
How to Elect at Death
Typically a Stretch IRA is best set up by the IRA owner prior to death. However if you are a beneficiary of an IRA or other qualified plan that wasn't set up prior to death, then you have some very delicate steps to go through to elect. Some considerations:
1. DON'T TOUCH THE MONEY. DON'T TAKE ANY DISTRIBUTIONS. DON'T MOVE THE MONEY TO ANY OTHER ACCOUNT JUST YET. By doing so will kill the Stretch.
2. Make sure that the current IRA vehicle will allow a Stretch.
3. Make sure the custodian can perform a Stretch--and the fees, costs, and commissions associated with the vehicle.
4. Due to several cases on the legal status of Stretch IRA's, see if your State allows Stretch IRA's to be protected vehicle. Otherwise it will be subject to the Decedent's creditors, and yours too.
5. You must title the IRA a very special way and SUCH TITLE can depend on the account type and purpose of the stretch. This is the most important part...get it wrong and the stretch is gone forever!
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