invest houses (Merril) market "Stretch IRA" but is it only using the new IRS rules to allow yuse of named beneficiary's life expectancy?

[Guest CashBalance]

If the IRA owner dies before Required Mn Distrib date (April 1 of the year following attaining age 70 + 1/2)

as opposed to dying after Req Date.

May the beneficiary use his/her own age to calc life expectancy?

[Guest ERISA_kid]

Generally, yes. The beneficiary can use his/her life expectancy to calculate RMDs. However, you should speak with an expert before making an election since there may be special treatment that applies to your unique situation.

[Appleby]

Regarding your heading- If you are saying that the financial institution will allow the designated beneficiary to use his/her life expectancy when the IRA owner dies before the require beginning date(RBD), then that is correct and in keeping with the stretch provisions. Generally, the stretch allows the first generation beneficiary to designate a second generation beneficiary ( and a third generation beneficiary and so on) . However, regardless of the number of generations of beneficiaries that the IRA is passed on to, the only life expectancy that can be used is the life expectancy of the first generation beneficiary.

[Guest CashBalance]

Then this means that there is no advantage in choosing younger rather than older named beneficiaries?

Because the life table used will always be based on the decedent?

[Mary Kay Foss]

During lifetime all RMDs are determined based upon the uniform table unless the sole beneficiary is a spouse who is more than 10 years younger than the owner. It doesn't matter if the beneficiary is older, younger or nonexistent, the uniform table is used.

After death is when the age of the beneficiary is important because it determines how fast or slowly the retirement account must be distributed.

[Appleby]

True.

CashBalance- remember after death, it is the life expectancy of the beneficiary that is used- not that of the deceased. Therefore, for purposes of the stretch-out options, choosing a younger beneficiary is more advantageous.

For instance, if the beneficiary is age 40 the year following the year of the IRA owner’s death, the IRA may be stretched over a life expectancy of 43.6 years. If the beneficiary is age 25 the year following the year the IRA owner dies, the IRA may be stretched over 58.2 years… age 10= 72.8 years and so on.

[mbozek]

While stretch IRAs permit long payouts it is at ordinary tax rates not cap gains or the special 5/15% rate for dividends. In addition naming a grandchild as a beneficary of the owner's IRA can trigger the 48% Generation Skipping tax if the child of the owner is alive and the value of all interests subject to GST transferred by the owner exceed 1.5 million. The GST tax is in addition to the 45% estate tax on transfers in excess of 1.5 million.