Many parents may have adult children with less earning power or fewer job opportunities than they had themselves. Parents often tell that they are looking for ways to provide their children with more financial security for the future. One of the retirement custodians is to give money to your children. If you don’t plan to use all of the money in your retirement accounts for your living expenses once you stop working, you can gift any remaining money to your adult children and help them fund their own retirement needs. The key to turning your IRA into a source of retirement funding for your children is reducing the impact of required minimum distributions on your future account growth.
With a stretch IRA, you name your spouse as the primary beneficiary and one or more of your children as a secondary or beneficiary. When you die, ownership of the IRA is transferred to your spouse. When your spouse dies, any remaining money is held in your spouse’s name for the benefit of your child. The advantage of this strategy is that minimum required distributions will now be based on your child’s life expectancy, reducing withdrawals from the account and allowing the account to continue growing over time.
Tips to expand your IRA
- When you retire, withdraw money from your taxable accounts before taking withdrawals from your IRA. This will allow your IRA account balance to continue growing for you and your spouse. If there happens to be money left over that you don’t spend for your retirement, you can leave it to your children in a stretch IRA.
- Ask your wealth and accounts manager to verify with your IRA custodian that the custodian will allow your secondary beneficiaries to stretch distributions. Some custodians may require your secondary beneficiaries to take all distributions within 5 years. If needed, consider changing the custodians.
- Make sure your kids can avoid liquidating the IRA upon the deaths of you and your spouse. Set up a qualified IRA trust for your children, which will allow them to employ a stretch IRA strategy-and keep more of their inheritance and safety.