The Expanded IRA allows for longer tax-deferral periods and the ability to distribute assets to beneficiaries according to the owner’s instructions. It simplifies estate planning and provides financial security for beneficiaries over a longer period of time. It’s important to inform beneficiaries about the structure to plan for taxes.
The Expanded IRA is an individual retirement account (IRA) that has been created to maximize the tax-deferral period, even to the point of extending tax-deferred earnings to the next generation. This type of structure makes it possible for the IRA owner’s survivors or beneficiaries to claim longer deferral periods since the IRA’s assets are distributed according to the instructions left by the decedent. The ability to defer taxes for an extended period of time makes it possible for beneficiaries to arrange to pay any applicable taxes associated with funds received from the IRA in any given tax period.
When it comes to organizing an estate, creating an IRA account is a simple process that helps minimize the red tape that is often involved in settling an individual’s affairs after death. For the most part, setting up an IRA is the same as any type of individual retirement account. What is different is that the account owner specifies who will inherit the assets contained in the IRA. In the event that multiple beneficiaries share the money deposited in the IRA, the owner determines, in advance, what percentage of the disbursed funds should be sent to each beneficiary.
Making use of the IRA stretch option has several benefits. First, the account owner can be sure that the cash collected in the account will be distributed to the person or persons named as the beneficiary. A second advantage is that IRA money can be spread over a longer period of time. This means that a parent can structure the Extended IRA so that the children can receive disbursements annually over a period of many years, providing them with a degree of financial security.
Because the extended IRA does include the designation of the person or persons who will receive disbursements upon the death of the account owner, it is important to inform each beneficiary in advance that the individual retirement account is structured this way. By doing so, the recipients of the disbursements will be able to organize their own finances in a way that accommodates the taxes that will be due once the deferral period is complete.
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