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Establishing a Legacy
By Chad Carlson

Many physicians work hard over the course of their careers and are wise enough to bank considerable savings and assets. As a result, they may find themselves in a position where they will not need to draw upon the assets of their retirement plans beyond the required minimum withdrawals that begin at age 70 ½. If you are not planning to use your IRA in retirement, a little preparation can help you create a long-term legacy for generations.

IRAs were designed to generate retirement income, however; many retirees will never spend their IRA assets in their lifetime and plan on leaving them to their loved ones. The problem is that - while IRAs are ideal for retirement - they are poor wealth transfer tools. If your beneficiaries inherit your IRA during their 30s, 40s and 50s -- theoretically their peak earning years - these heirs could face an unusually high income tax on those assets.

One option to reduce the tax burden for your loved ones is to plan on a "stretch" IRA. The term "stretch" here refers to a method for extending the duration of IRA beneficiary distributions to certain successor beneficiaries, beyond the death of an original designated beneficiary. This can be especially valuable to a non-spouse beneficiary.

After an IRA owner's death, a spouse beneficiary can treat an IRA as their own if they are the only beneficiary. If there are multiple beneficiaries, a spouse beneficiary can always take a distribution of their share in an IRA and roll it over to a personal IRA. Once the assets are in their own IRA, they can name their own death beneficiaries.

After an IRA owner's death, a non-spouse IRA beneficiary generally takes required minimum distributions based on their single life expectancy. An original beneficiary's death generally requires distribution of any remaining IRA assets in a single sum to their estate. By stretching out the distributions, the duration of these payments can continue to a series of successor beneficiaries beyond the death of an IRA's original beneficiary.

This can help your beneficiaries to minimize the tax impact by taking their required withdrawals slowly over time. More importantly, it gives the remaining IRA assets even more time to take advantage of potential long-term growth and compounding.

Here are issues to consider as you work with an advisor to determine if a stretch IRA is the right strategy for your family.

Will you need the money during retirement? Americans are living longer than ever before, and life expectancies are rising. Using your IRA assets during retirement will, of course, reduce the amount that passes to your loved ones.

Will your intermediate IRA beneficiaries need the money? If beneficiaries need to pay estate taxes on part of their inheritance, or have other expenses to pay, they may need to take the asset as a lump sum, thus ending the "stretch." Plan to discuss your intention to provide a stretch opportunity with your family.

Will you take the smallest amount possible from your IRA? Stretch IRAs tend to assume only the required minimum distributions are taken (although you are always free to take more). The smaller the distributions, the longer the IRA may last.

What will happen with tax laws, inflation, and market volatility? As we all know, past results can never predict the future. Although they are beyond our control, your loved ones will certainly have to pay taxes, deal with inflation, and face significant market volatility. That's why its so important to seek out financial strength and thoughtful stewardship for the long-term management of your money.

Chad Carlson is a Financial Advisor with Delta Trust Investments, Inc. For more information, contact Chad at (501) 975-4010 or by email at ccarlson@delta-trust.com. Delta Trust does not offer tax or legal advice and recommends that you consult your tax or legal advisor.