Advanced Underwriting Consultants

TRUTHING THE STRETCH WHAT FINANCIAL PROFESSIONALS NEED TO KNOW

INTRODUCTION

 Clients see a fair amount of information about stretch IRAs.  This can lead to confusion, as they try to understand what stretch might mean in their circumstances. 

Pensions, IRAs and nonqualified deferred annuities (NQDAs) can all potentially be stretched at the account owner’s death.  “Stretch” means that the beneficiary can delay the federal income tax consequences associated with the transfer of the account. 

Stretch choices may differ based on the 

  • Timing of the taxpayer’s death,
  • Type of account,
  • Relationship of the beneficiary, and
  • Timing of the stretch election. 

The financial professional will be called on to help a client draft beneficiary designations for IRAs, pensions and annuities.  One of the key factors in drafting beneficiary designations is the potential tax consequences to the beneficiary or beneficiaries of the account.  

Stretching the tax result associated with an IRA, pension or NQDA is not always the right choice for the beneficiary.  However, since it’s often hard to predict the circumstances that will exist at the account owner’s death, keeping the option of stretching open is usually the best help a client can get.