What Does "stretch an IRA" Mean?

What Does "stretch an IRA" Mean?

Stretching an IRA refers to an estate planning concept that seeks to give the funds in an individual retirement account more time to compound tax-deferred. It is part of a strategy that allows the primary beneficiary of an IRA to distribute assets to the future generations of beneficiaries.

When an IRA is stretched, it can be passed from one generation to the next while growing in a tax-free or tax-deferred environment. To avoid the money becoming taxable, the person who inherits an IRA should avoid rolling it into his own IRA. He should retitle the IRA using his own name and the name of the deceased. A person should only take the required minimum distribution and invest the remaining principal if he intends to stretch the IRA to a third generation.