Individual retirement accounts

Can my IRA provide a legacy for my heirs?

You can use your IRA to pass money to future generations, but it’s not always simple. There are many rules, regulations, and other factors to keep in mind when determining the best strategy. On this page, we’ll take a look at some of the ins and outs of navigating an IRA distribution.


Distribution options

How you name the beneficiaries on your IRA can have a big impact on the distribution options that are ultimately available to those beneficiaries or, in turn, to their heirs. You may want to provide income from your IRA to your children or grandchildren over their lifetimes, often known as “stretching” an IRA. But depending on how you designate your beneficiary, all the assets in your IRA may have to be distributed — and potentially taxed — within a few years of your death.

The chart below illustrates how beneficiary choice can affect distribution options.

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Chart: Distribution options

As the chart shows:

Distribution rules vary according to whether your beneficiary is your spouse, another individual, or an entity such as a trust or estate. Carefully consider your primary and contingent beneficiaries, and make sure the distribution options available to them are in line with your goals. Naming individuals as beneficiaries often affords the greatest flexibility.

Not all trusts allow you to “stretch” income from your IRA over the lifetimes of the trust’s beneficiaries. If that’s your goal, check with your attorney to make sure the trust qualifies for so-called “look through” provisions, which allow the extended distributions.

Even with these provisions, naming a trust (rather than the underlying individuals) may require the money to be withdrawn faster.

Naming your estate the beneficiary leaves your heirs even fewer options. They will not be able to “stretch” distributions from your IRA beyond your own life expectancy. Consider whether there are advantages to naming an estate as beneficiary which outweigh the disadvantage of losing the “stretch” opportunity.


“Stretching” your IRA

“Stretching” an IRA can greatly increase the amount of income your beneficiary can ultimately withdraw from you IRA – compared to a lump sum distribution – because more of the balance remains in the account and continues to grow tax deferred over their lifetime. The longer the life expectancy of your beneficiary, the greater the benefit to them.

The chart below uses a hypothetical IRA to show how stretching can dramatically increase an IRA’s total distributions.

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Chart: Stretching your IRA

As the chart shows:

When you want your heirs to stretch an IRA, you pass the IRA to your heirs and the annual required minimum distributions (RMDs) are calculated based on your heirs’ life expectancy rather than yours, making them lower than your RMDs. This depletes the IRA’s assets more slowly, so it can continue earning tax-deferred returns for a longer period, allowing our hypothetical IRA to provide income for two generations and three owners over the course of 49 years.

To find out how many years a beneficiary will be able to keep an IRA growing while taking distributions, look up the beneficiary’s age in the table. The “divisor” figure in the table is the number of years over which the IRA must be completely distributed.

To calculate a beneficiary’s RMD correctly, determine their age the year following the IRA owner’s death, find the life expectancy factor (divisor) for that age and subtract one for every year that has passed. Divide the resulting number into the IRA’s total account balance to find the RMD.


Points for professionals

  • Schedule appointments with your clients to do a beneficiary check-up.
  • Identify accounts clients have in other places that have beneficiaries named.
  • Discuss the advantage of having their accounts consolidated to ensure the most timely and effective transfer of wealth.
  • Identify clients who have previously inherited IRAs.
  • Talk to them about their RMDs to ensure they are taking the appropriate amount.
  • Make sure they are not subject to a 50% penalty.
  • Guide clients on their retirement life path and provide them with the education they need to navigate their retirement with our client-approved.


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Address your clients' concerns with our scenario-specific charts and talking points.
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Address your clients' concerns with our scenario-specific charts and talking points.