FAQs About Stretch IRAs

• How does a Stretch IRA work?
• What happens if there are multiple beneficiaries?
• Is there a way to use a different life expectancy for each beneficiary?
• How long can payments continue?
• Can a beneficiary always name his or her own beneficiary?
• What happens if my original beneficiary is a qualified trust?
• What requirements must a trust meet to be qualified as an IRA beneficiary?

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How does a Stretch IRA work?

A Stretch IRA is not a special type of IRA. It is a provision contained within the IRA, which allows a beneficiary to calculate RMDs after an account holder's death based on his or her life expectancy as opposed to the account holder's life expectancy.

What happens if there are multiple beneficiaries?

If there are multiple beneficiaries, RMDs are generally based on the life expectancy of the oldest beneficiary.

Is there a way to use a different life expectancy for each beneficiary?

Before death, you can split your account into multiple IRAs and name a different beneficiary for each account. By December 31 of the year after death, the IRA can be split into sub-accounts for each beneficiary.

How long can payments continue?

Payments to subsequent beneficiaries must continue over the original beneficiary’s life expectancy. Payments will continue until the account is depleted.

Can a beneficiary always name his or her own beneficiary?

Yes, as long as it is allowed by the IRA trust.

What happens if my original beneficiary is a qualified trust?

In general, the trustee has two options:

1. Have the distributions paid to the trust, then pay the money as income to the trust beneficiaries (or let it accumulate in the trust if they have that discretion).
2. Set up beneficiary IRAs for each underlying trust beneficiary. Under this option, distributions are still based on the life expectancy of the oldest beneficiary and balances must be aggregated for calculating the payments. However, once the account is split into sub-accounts, each beneficiary, rather than the trustee, controls the direction of the account. See Beneficiary Designations for more information.

What requirements must a trust meet to be qualified as an IRA beneficiary?

In general:

1. The trust must be valid under state law.
2. The trust must be irrevocable or become irrevocable upon the death of the account holder.
3. The beneficiary must be identifiable from the trust instrument.
4. The IRA owner must provide the IRA trustee or custodian with a copy of the trust instrument, or alternatively, a list of all the trust beneficiaries (including contingent and remainder beneficiaries) and agree to:
   1. Provide a copy of the trust instrument to the IRA trustee or custodian upon demand and
   2. Provide the IRA trustee or custodian with any amendments to the previously supplied information in the future.