Investment Updates
Live Long And Prosper: Roll Out A Stretch IRA
Published Saturday, January 10, 2015 at: 7:00 AM EST
The individual retirement account (IRA) is a time-tested way to save for retirement. Typically, you make contributions to an IRA during your working career, or you roll over funds to an IRA from a 401(k) or another employer plan, or both. You might end up with a sizable stash from which you'll be able to withdraw during retirement.
But you may not have to tap that part of your nest egg much if you can rely upon retirement income from other sources, though you will have to take required minimum distributions (RMDs). If it looks as if much of the account will survive you, you might consider the potential benefits of a "stretch IRA." That can help an IRA be there for your chosen beneficiaries long after you're gone.
Under the rules for IRAs, you can take as much as you want out of your account whenever you want, although there's normally a 10% tax penalty on distributions you take before you reach the age of 59½. At the same time, though, you can leave money in the IRA indefinitely, except for taking the RMDs that must begin when you hit age 70½. Those are taxed as ordinary income, which means the tax rate on that money may be as high as 39.6%. And there can be other tax consequences, too.
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