Properly Naming Beneficiaries


The Stretch IRA

The stretch IRA is the ability of the named beneficiaries to spread required post-death distributions over their life expectancy according to the IRS Single Life Expectancy table. In English, it means that someone inheriting an IRA does not need to cash it in and pay the tax at once, but is entitled to take distributions over their life expectancy (and thereby spread the income taxes over several years), per the following IRA table. IRA owners just need to name an individual beneficiary on the IRA to provide the possibility of this lifetime stretch of payments.


Mike Jones died in 2003. He had named his 40- year-old daughter, Sally, the sole beneficiary of his IRA. Sally will use her 43.6-year life expectancy from the table below to determine the required distribution. She only needs to do this once. For each succeeding year, she simply subtracts one from the life expectancy. In this case, the required distribution for 2005 (her second distribution year) would be calculated using a 42.6-year life expectancy. For the third year, the life expectancy would be 41.6 years, then 40.6 years, 39.6 years, and so on until the original 43.6-year term has expired, unless she withdraws the IRA before that time.

If the IRA owner had named his spouse as beneficiary, the above situation would work differently. Only a spouse beneficiary who is the sole inheritor can go back to this table each year for recalculating life expectancy. A non-spouse beneficiary cannot recalculate and would only use this table to compute the first year’s required distribution for the inherited IRA. The life expectancy will then be reduced by one year for each succeeding year. In fact, a spouse beneficiary has other options, which we will see when we discuss that circumstance a little later.

Table 4.3

Single Life Expectancy Table (for Inherited IRAs) (1)

(For calculating post-death required distributions to beneficiaries)

(1) From IRS Publication 590

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