As a longtime financial industry stalwart, Les Schlais has accumulated a great deal of advanced knowledge in many different areas. Since a lot of people who look for financial information are concerned about retirement, he has a thorough understanding of the tools that are typically utilized.

Individual retirement accounts are commonly used by people who want to set aside resources to draw from during their senior years. Les Schlais is the CEO of Syncis, a company that provides clients with information financial products.

Most people will need to contribute into an IRA for numerous years to accumulate sufficient resources. However, as time goes by, you may recognize the fact that you may not need the assets in your individual retirement account. When these circumstances exist, the “stretch IRA” strategy can be quite effective as a legacy planning tool.

This strategy is best implemented if you have a Roth IRA. With this type of individual retirement account, you make contributions with after-tax earnings. As a result, withdrawals are not subject to income taxes. Things work in the reverse manner with a traditional individual retirement account. However, you can convert an individual IRA to a Roth IRA if you are willing to pay the taxes.

If you have a Roth IRA, you are never required to take distributions. You can continue to allow the assets in the account to grow in a tax-free manner throughout your life. A beneficiary that you name would assume ownership of the account after your passing. Assuming the beneficiary is someone other than your spouse, the beneficiary would be required to take mandatory minimum distributions. These distributions would not be subject to taxation.

The beneficiary could maximize the tax-free growth by taking only the minimum that is required by law. Financial professionals refer to this practice as “stretching an IRA,” and this can be a very effective financial decision for the beneficiary. These mandatory minimum distributions are calculated based on the life expectancy of the beneficiary of the Roth individual retirement account. A younger beneficiary would be allowed to take less than an older beneficiary, so this is something to keep in mind when you are engaged in your estate planning efforts.

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