Five Rules to Help Stretch Out IRAs

These five rules can help you to stretch out the tax benefits of IRAs, possibly for decades:

1. First, do no harm. Don’t take out money or make any changes until you know what rules apply. You must also retitle the IRA.
2. Beneficiary forms rule. The beneficiary form determines who inherits the IRA and its ability to be stretched out. If the estate is named as a beneficiary, tax deferral is cut short. If there is no beneficiary form on file, the IRA custodian’s default policy will rule.
3. Employer plans are different. Some employer plans allow the funds to go straight to the kids if there is no beneficiary form and no living spouse. However, employer plans usually don’t allow nonspouse beneficiaries to stretch out withdrawals.
4. Spouses have more options. A spouse can roll inherited IRA assets into his/her own IRA and postpone distributions until he/she turns 70.5.
5. Watch for distribution traps. If the deceased IRA owner was 70.5 or older, beneficiaries must withdraw the owner’s mandatory distribution for the year before doing anything else.

See Deborah L. Jacobs, Five Rules for Inherited IRAs, Forbes.com, June 9, 2010.