As we enter the early part of the 21st century, many individuals are fortunate enough to have accumulated substantial amounts of retirement assets. Some worked for companies who either established a defined benefit plan where a lump sum distribution was permitted, or a qualified defined contribution plan (profit sharing, money purchase, 401(k) and/or 403(b)). The company’s plan may have also allowed them to contribute to these retirement programs, either a 401(k) or 403(b) deferrals. They may have also contributed to Individual Retirement Accounts (IRA). As these plan participants are retiring, they are trying to achieve their goal of securing a comfortable retirement income for themselves, while at the same time trying to ensure any assets that remain after their demise are paid to their designated beneficiaries in a manner that would not be quickly dissipated.
Much has been written about the advantages of being able to pay remaining retirement assets to the next generation over an extended period of time. This has been commonly referred to as a stretch out or elongated distribution method. The problem is not the theory behind this elongated distribution payout method, but the implementation of the concept. Previously, if benefits were not paid to a surviving spouse, designated beneficiaries, as a general rule, had to include these assets in their taxable income over a short period of time. However, there is now the opportunity for a designated beneficiary to establish an inherited IRA and receive the benefits over her lifetime.
