Beneficiaries can now pass their savings accumulated in their IRAs to their spouses, siblings, children and third or fourth generation descendants without any tax penalties.
Prior to recent legislation, individuals setting up an IRA designate a beneficiary. However, this transfer was limited by generation: IRAs could only be passed from one generation down to another. Late last year, the IRS ruled in one case that a son, who was the beneficiary of an IRA account from his mother, was able to designate his own beneficiary. The ability to pass on IRAs thus extended their flexibility down through the generations.
Analysts have denoted the change as the "stretch IRA," as individuals can now reduce their minimum withdrawals, leaving more money for future compounding. Be forewarned, however, that beneficiaries of a traditional IRA may find themselves hit by both estate and federal income taxes.
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Find out more about IRAs in your 40s, 50s, 60s and 70s.
