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The year was 1967 and his Dad was in Vietnam. Since his birthday was September 11th, he wasn’t old enough to go into first grade with most of his buddies. Suffering from timid shyness and a distinct stutter, Michael Ham burst into tears of terror at age six, when he learned he was selected as a... More
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  • The Death Of The Stretch, IRA. 0 comments
    Feb 13, 2012 7:50 PM

    Please so it isn't so Joe; but if law makers get their way the outstanding estate transfer tool called the "Stretch IRA" is doomed. In the latest transportation funding bill, language is buried deep within that would kill the stretch IRA for most non-spouse inheritors.

    Yes, you read that correctly; the ability to select an option to delay taxes on inheriting your parents IRA or even the ability to "disclaim" the inheritance and pass it down the line to kids and grandkids is severely in jeopardy. If you're forgotten exactly what the Stretch is or how it works, here is a very brief refresher:

    Typically when the owner of an IRA dies, the spouse will hopefully inherit the IRA as a named beneficiary (read my previous blog about the horrors of naming the estate as beneficiary of your IRA). And as such, the spouse can either rollover the entire IRA into their own IRA and if much younger than the dead spouse, can push back paying the taxes for many more years. It is also extremely wise to name contingent beneficiaries even if the primary beneficiary is likely to want to inherit the IRA. Naming contingent beneficiaries is just a smart thing to do.

    The stretch is so valuable an option because when the children or grandchildren are able to inherit the IRA, their age and current life expectancy will push back paying the taxes for a crazy amount of time. But this is about to all change; unless you contact your Washington delegate and give them a piece of your mind; before they take a piece of your future net worth.

    Under the new proposal (you may find the actual law here) you'll read that unless the deceased IRA is converted fully to a ROTH, no more stretch, Armstrong.

    Thus, if your parents or grandparents left an IRA to you, the entire amount of the IRA would have to be received within five years of the death and 100% of the income taxes will be due and payable. This really stinks.

    Currently most IRA's are taxed when money is taken out of the IRA wrapper and at age 70 ½ the owner is forced to remove money and thus forced to pay taxes. Pushing back the requirement to take money out of the IRA wrapper is the key to having your money explode to the upside due to the phenomenal power of compounding interest.

    No good thing ever last forever and this is one that is slated to end. Contact your law makers in Washington and tell them to please keep their hands out of our cookie jar.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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