With an IRA, required distributions are designed so that theoretically, your distribution period is always greater than your age*, presuming a normal growth rate. So for many retirees, the money doesn’t run out. There is money left for heirs. It’s important to consider how that money is passed on.

The beneficiary of what is called “an inherited IRA” can opt to continue the tax-deferred growth; the rules for required distributions allow for such a “stretch” provision**. He or she can take distributions over a fixed period of time, based on life expectancy. For example, a 20-year-old beneficiary can take payments over 63 additional years. Special rules apply to spousal beneficiaries after that.

A word of caution, though: Given the choice of a lump sum or tax-deferred distribution (and I have seen this happen many times), most heirs seem to know only four words: “Show me the money.” If you suspect that will be the case, it’s possible, to name a trust as the beneficiary of your IRA to establish some control over how distributions will be taken after your death. You should consider whether family situations call for such action.

Most heirs will not know that a stretch is available to them—and if they do, they could fail to get the full benefit from it. IRA owners can do themselves and their heirs a big favor by setting this up in advance, in some way, shape, or fashion. They could reach out to the heirs, while the account owner is still alive, and explain the distributions available to them and to whom they can go to for guidance when the time comes for distribution.

Mutual of Omaha Investor Services, Inc. and its representatives do not provide tax or legal advice; therefore it is important to coordinate with your tax or legal advisor regarding your specific situation.

*IRS – www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf (Revised 8/12/2014)
**Investopedia – www.investopedia.com/terms/s/stretch-ira.asp (Revised 8/12/2014)