Kfs stretch ira's

© 2013 VSA, LP Valid only if used prior to January 1, 2014. The information, general principles and conclusions presented in this
report are subject to local, state and federal laws and regulations, court cases and any revisions of same. While every care has
been taken in the preparation of this report, neither VSA, L.P. nor The National Underwriter is engaged in providing legal,
accounting, financial or other professional services. This report should not be used as a substitute for the professional advice of an
attorney, accountant, or other qualified professional.
Extending
Retirement Assets
A “Stretch” IRA Review
1a2-19

What Is a “Stretch” IRA?
2Extending Retirement Assets: A "Stretch" IRA Review
until, that is, the funds are actually distributed, at which
time income tax must be paid on the amount of the
distribution from a traditional IRA.
A major benefit of an IRA is that there is
no federal income tax paid on the growth
in the IRA
Traditional IRA tax deferral, however, cannot continue indefinitely. Federal tax law requires that
distributions from a traditional IRA must begin no later than April 1 of the year following the year in
which the IRA owner reaches age 70-1/2, whether or not the IRA owner has retired.
Over a period of years, this tax deferral can contribute to the accumulation of
significant funds in an IRA.
What if the owner of a
traditional IRA has
sufficient retirement
income and, rather than
taking IRA distributions,
would prefer to leave the
IRA to his or her heirs?
If the owner of a traditional IRA has sufficient retirement income
without the need to take IRA distributions above the required
minimum distributions, a "stretch" IRA might be the answer.
A "stretch" IRA is not a special type of IRA…instead it is a wealth
planning strategy with the objective of stretching the amount of
time during which traditional IRA assets have the opportunity to
continue growing on a tax-deferred basis inside of the IRA.

How Are Required Minimum Distributions Calculated?
IRS regulations include a "Uniform Lifetime Table" that is generally used to calculate the required
minimum distributions that must be made from traditional IRAs beginning at age 70-1/2.
Step 1
Account balance as of the previous
December 31:
continued on next slide
To calculate your annual required minimum distribution, follow these simple steps:
Distribution period factor based on age
as of December 31 in the year for which
the distribution is being calculated:
Step 2
Divide Step 1 by Step 2; the result is the
annual required minimum distribution
for the year:
Step 3
$
$
200,000$
$
Example:
25.6
7,812.50

How Are Required Minimum Distributions Calculated?
Uniform Lifetime Table
Age
Distribution
Period Factor
70 27.4
71 26.5
72 25.6
73 24.7
74 23.8
75 22.9
76 22.0
77 21.2
78 20.3
79 19.5
Age
Distribution
Period Factor
80 18.7
81 17.9
82 17.1
83 16.3
84 15.5
85 14.8
86 14.1
87 13.4
88 12.7
89 12.0
Age
Distribution
Period Factor
90 11.4
91 10.8
92 10.2
93 9.6
94 9.1
95 8.6
96 8.1
97 7.6
98 7.1
99 6.7
Age
Distribution
Period Factor
100 6.3
101 5.9
102 5.5
103 5.2
104 4.9
105 4.5
106 4.2
107 3.9
108 3.7
109 3.4
Age
Distribution
Period Factor
110 3.1
111 2.9
112 2.6
113 2.4
114 2.1
>114 1.9
NOTE: Non-deductible
Roth IRAs are not
subject to minimum
distribution
requirements.
EXCEPTION: If your beneficiary is your spouse who is more than 10 years younger than you, instead of this table you can use the
actual joint life expectancy of you and your spouse from the IRS Joint and Last Survivor Table to calculate required minimum
distributions.

Other Traditional IRA Minimum Distribution Requirements
When Must Required Minimum Distributions Begin?
Required minimum distributions must begin no later than April 1 of the year following the
year in which you reach age 70-1/2 and must continue each year thereafter. If you wait until
the year following the year in which you reach age 70-1/2, you must receive a minimum
distribution on behalf of the previous year by April 1 of the current year, and a minimum
distribution on behalf of the current year by December 31 of that year.
What Happens if Minimum Distribution Requirements Are Not Met?
If the amount distributed from a traditional IRA is less than the minimum distribution
required in any calendar year, a penalty tax equal to 50% of the amount by which the actual
distribution falls short of the required minimum distribution is imposed.
For example, if the required minimum distribution for a calendar year is $20,000, but only
$12,000 is actually distributed from the IRA, a penalty tax of $4,000 must be paid ($20,000 -
$12,000 = $8,000 x 50%)…an outcome to be avoided!

Other Traditional IRA Minimum Distribution Requirements
Are There IRA Reporting Requirements?
Yes, financial institutions must report IRA required minimum distribution amounts to the
IRS.
Traditional IRAs have minimum distribution requirements during the owner's lifetime.
Roth IRAs, on the other hand, have no date by which distributions must begin during
the owner's lifetime. Both have distribution requirements that come into effect at the
IRA owner's death.
NOTE:

What Is the Impact of Lifetime Required Minimum Distributions?
The objective of the required minimum distribution rule is to ensure that the entire value of a
traditional IRA will be distributed over the IRA owner's life expectancy. Basing distributions on life
expectancy, however, allows required minimum distributions to be spread over a significant
number of years, during which the assets remaining in the IRA continue to grow on a tax-deferred
basis.
Let's look at an example.
Assuming the IRA account balance is $500,000 when required minimum distributions must begin and the
account owner is age 71, the following is the impact on the IRA account balance of taking only the
required minimum distribution each year, assuming the remaining account balance earns 5%(1) and that
the required minimum distribution is taken on December 31 of each year.
While this is a hypothetical example, it does illustrate how a traditional IRA can continue to grow in
value, despite the payment of required minimum distributions. In our example, the IRA owner
receives over $392,000 in distributions through age 85, at which point the IRA value first drops
below its original value of $500,000.
It is important to understand, however, that IRA income and growth is dependent on the actual
rate of return of the underlying investments that fund the IRA, as well as the length of time the
money is invested…rates of return vary over time, particularly for long-term investments.

What Is the Impact of Lifetime Required Minimum Distributions?
Year
Beginning IRA
Balance(2) Age
Ending IRA
Balance(3)
Required Minimum
Distribution (4)
1 $500,000 71 $525,000 $18,868
2 $506,132 72 $531,439 $19,771
3 $511,668 73 $537,251 $20,715
4 $516,536 74 $542,363 $21,703
5 $520,660 75 $546,693 $22,736
10 $527,542 80 $553,919 $28,211
15 $504,875 85 $530,119 $34,113
16 $496,006 Total Distributions: $392,624
1 For illustration purposes only; is not indicative of the actual performance of any particular investment and does not reflect the
fees and expenses associated with any particular investment, which would reduce the performance shown in this hypothetical
illustration if they were included. In addition, rates of return will vary over time, particularly for longer-term investments.
2 As of December 31 of the previous year, after subtracting that year's required minimum distribution
3 As of December 31 of the current year
4 Assumes that the required minimum distribution is taken on December 31 of each year

Naming an IRA Beneficiary
When you open an IRA account, you are asked to name a beneficiary or beneficiaries to receive
the value of the IRA at your death. You can also change beneficiaries during your lifetime. There
are generally three classes of beneficiaries:
A primary beneficiary is your first choice of who you want to receive
the IRA value at your death.
Primary Beneficiaries
A secondary beneficiary receives the IRA value if your primary
beneficiary does not survive you.
Secondary Beneficiaries
A final beneficiary receives the IRA value if none of your primary or
secondary beneficiaries survive you.
Final Beneficiaries
If you do not have a named beneficiary who survives you, your estate becomes the beneficiary,
which may produce less advantageous tax and distribution outcomes.
If you're married, you can name your spouse as your IRA beneficiary. Alternatively, you can name
multiple beneficiaries. If, for example, you have three children, you could name them as the three
primary beneficiaries, specifying the percentage of the IRA each will receive. Or, you could name
your spouse as the primary beneficiary and your children as the secondary beneficiaries.

Naming an IRA Beneficiary
Keep in mind that a spouse who is the sole beneficiary of an IRA has the option of treating the
Inherited IRA as his/her own, meaning that the assets in the Inherited IRA need not be distributed
prior to the surviving spouse attaining age 70-1/2.
If you have several IRAs, you can name different beneficiaries for each IRA. If you have both a
traditional IRA and a Roth IRA, however, keep in mind the different income tax treatment of these
two types of IRAs: the beneficiary of a traditional IRA will have to pay income tax on IRA
distributions, while the beneficiary of a Roth IRA will receive distributions income tax free.
Certain situations require special care in designating IRA beneficiaries. These
include marriages in which one or both spouses have children from a prior
marriage, as well as a child or grandchild with a disability or a drug or alcohol
problem that might impair their judgment or use of funds from the IRA. In
this situation, naming a trust as beneficiary can establish some control over
how the funds are used after your death.
CAUTION:

What Happens at a Traditional IRA Owner’s Death?
1 Immediate Lump-Sum Distribution
Here's where "stretch" IRA planning can come into play. Required minimum distributions from a
traditional IRA cannot be avoided during your lifetime. As illustrated by our earlier example,
however, required minimum distributions do not necessarily deplete the value of a traditional IRA.
Instead, the value remaining can be substantial at an IRA owner's death, when careful advance
planning can serve to stretch the tax deferral into the future.
The options available to an individual who inherits a traditional IRA include the following:
Surrender the inherited IRA and receive the entire value in a lump sum. The taxable value of the
IRA is then included in the beneficiary's income in the year of surrender.
2 Distributions Over Five Years
If the IRA owner was under age 70-1/2 at death, the beneficiary can take any amounts from the
inherited IRA, so long as all of the funds are distributed by December 31 of the year containing the
fifth anniversary of the original IRA owner's death. This option is not available if the IRA owner
was over age 70-1/2 at death.

3 Life Expectancy
The IRA assets are transferred to an inherited IRA in the beneficiary’s name, where the date by
which required minimum distributions must begin depends on whether or not the beneficiary is
the surviving spouse and by the IRA owner’s age at the time of death.
For spouse beneficiaries
If the deceased spouse was younger than age 70-1/2 at the time of death, the surviving spouse may
delay required minimum distributions until the year in which the deceased spouse would have
reached age 70-1/2.
If the deceased spouse was older than age 70-1/2 at the time of death, the surviving spouse must
begin taking required minimum distributions by December 31 of the year following the spouse’s
death.
For non-spouse beneficiaries
Required minimum distributions from the inherited IRA can be spread over the non-spouse
beneficiary's life expectancy, with the first payment required to begin no later than December 31
of the year following the year of the IRA owner's death.

4 Spousal Transfer
Under this option available only to surviving spouses who are the sole IRA beneficiary, the spouse
beneficiary treats the inherited IRA as his/her own and the IRA assets continue to grow tax-
deferred. IRA distribution rules are then based on the spouse’s age, meaning that distributions
may not be available prior to the spouse’s age 59-1/2 without paying a penalty tax and required
minimum distributions must begin by the spouse’s age 70-1/2.
With a spousal transfer, a surviving spouse who does not need current income can continue the
tax-deferred growth of the entire Inherited IRA until he/she reaches age 70-1/2.
The life expectancy option can be used to provide a current stream of income, while still
extending the tax deferral of funds in the Inherited IRA by stretching the required minimum
distributions over the beneficiary's life expectancy…potentially a long period of time in the case of
a younger beneficiary.
Spouse IRA beneficiaries, however, have an additional option to consider:

Since Roth IRAs have no required beginning date and no required minimum
distributions, a Roth IRA owner is not required to take distributions from a Roth IRA during his/her
lifetime. At the Roth IRA owner’s death, a spouse beneficiary can treat the Roth IRA as his/her
own and continue to defer distributions indefinitely into the future. Alternatively, a spouse or
non-spouse Roth IRA beneficiary can transfer the assets to an Inherited IRA and elect the life
expectancy method, which does have minimum distribution requirements:
NOTE:
Required minimum distributions based on the beneficiary’s life expectancy must begin no later than
December 31 of the year following the year of the deceased Roth IRA owner’s death.
For non-spouse beneficiaries
Let's look at several hypothetical examples using a traditional IRA…
Required minimum distributions may be postponed until the year in which the deceased Roth IRA owner
would have reached age 70-1/2.
For a spouse who is the sole IRA beneficiary

“Stretch” IRA in Action: Spouse as Beneficiary of Traditional IRA
Spouse named as
beneficiary.
Required minimum
distributions must
begin no later than
age 70-1/2.
During Traditional
IRA Owner's Life:
Surviving spouse, age 65, inherits the
IRA, which she treats as her own, naming
her three children as equal beneficiaries.
Required minimum distributions must
begin no later than age 70-1/2.
Owner Dies at Age 74:
Surviving spouse, age 65, inherits the
IRA, which she splits into three separate
IRAs, naming each of her three children
as beneficiary of an IRA.
Required minimum distributions must
begin no later than her age 70-1/2.
The three children, ages 45, 48 and
50, inherit the IRA.
Required minimum distributions
based on the life expectancy of the
50-year-old child begin to all three
children.
The three children, ages 45, 48 and
50, separately inherit an IRA.
Required minimum distributions
are made from each Inherited IRA
to each child beneficiary, based on
that child’s life expectancy.
Surviving Spouse Dies at Age 78:
It is important that IRA beneficiaries name their own beneficiaries. In our example, what would happen if the 48-
year-old beneficiary died in 10 years, with value remaining in his IRA?
Unless he had named a beneficiary or beneficiaries, such as his spouse or children, the remaining IRA proceeds would
be paid to his estate, with potentially less favorable taxation and distribution results.
or

“Stretch” IRA in Action: Non-Spouse as Beneficiary of Traditional IRA
Adult child named as beneficiary.
Required minimum distributions must begin no later than
IRA owner's age 70-1/2.
During
Traditional IRA
Owner's Life:
Adult child, age 35, inherits the IRA, transfers the assets to
an Inherited IRA and names her spouse as primary
beneficiary with her children as secondary beneficiaries
Required minimum distributions based on her life
expectancy must begin no later than December 31 of the
year following the year of the IRA owner’s death
Owner Dies at
Age 65:
The beneficiary's spouse inherits the IRA, transfers the
assets to an Inherited IRA and names the couple’s children
as beneficiaries
Required minimum distributions continue, based on the
beneficiary's spouse’s life expectancy
Beneficiary
Dies at Age 60:
As the spouse and
non-spouse examples
illustrate, if
"stretching out" an
IRA is the objective, it
is important that the
IRA trust or custodial
documents used
contain language
that permits the
following:
- Distributions paid
to beneficiaries over
their life
expectancies;
- Division of an IRA
into multiple
separate IRAs; and
- The naming of
successor
beneficiaries.

“Stretch” IRA Advantages and Disadvantages
Advantages: Disadvantages:
If you will have no need to take money from your IRA above and beyond the required minimum
distributions, evaluate these advantages and disadvantages in deciding if a "stretch" IRA is right
for you.
The possibility of providing income to one
or more generations.
The ability to continue the tax-deferred
growth of IRA assets during the period of
time that distributions are being made.
The opportunity to minimize income tax
liability by spreading it out over a period
of years instead of paying it all at once.
Future tax laws and/or regulations may
make IRA growth and/or taxation less
advantageous to the beneficiaries.
Inflation and/or poor investment returns
may erode the value of future IRA
distributions.
An IRA beneficiary may elect to "take the
money and run," opting for a lump-sum
distribution at an IRA owner's death.

“Stretch” IRA Recommendation
It is strongly recommended that you obtain professional tax and legal guidance in structuring a
"stretch" IRA in order to fully evaluate:
The fees and expenses associated with a "stretch" IRA and its underlying investments.
Any tax limitations or withdrawal restrictions in the investment(s) used to fund the IRA.
The possibility that future changes in tax laws and/or IRS rules may impact required IRA
distributions and/or IRA taxation.
The impact of inflation, which will erode the future purchasing power of an IRA.
The inability to accurately project future investment results over a long period of time, as well
as the market risk inherent in exposing IRA assets to a lengthy distribution period.
The impact of a "stretch" IRA on your overall estate plan, including the inability to predict
when IRA beneficiaries will die.

Kfs stretch ira's

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Kfs stretch ira's