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Jim Lentini: Is your retirement income going to stretch far enough?

Posted: September 21, 2009 9:47 p.m.
Updated: September 22, 2009 4:55 a.m.
As you near the point where you can see that retirement will be a reality, you may wonder if your retirement assets will stretch far enough to do all the things that you'd like them to do.

The answer is a definite "maybe", depending on how you structure the distributions from your retirement plan.

Structured carefully, with a little help from your investment professional and tax adviser, the answer could become a definite yes!
Our current economic issues only add to the concerns we have about our retirement plans.

Making your assets go farther
Based on long-standing rules governing Required Minimum Distributions and beneficiaries, you can stretch your retirement assets over a longer period of time by carefully choosing your beneficiaries. Here's how it works:

When your retirement money is distributed to you, your first step is to move it to an IRA Rollover account, naming your spouse or someone younger as beneficiary.

When your spouse passes away, your son or daughter would then name one of their children as beneficiary. This is called a Stretch IRA.

Is a Stretch IRA for you?
If you're thinking of retiring soon, or are already retired, you may wish to consider stretching your retirement assets over a few lifetimes.

Talk this through with your investment professional and your tax adviser because they're the ones who know you best. They will guide you through the process if it's appropriate for you. Frequently asked questions are:

What happens if, after my minimum RMDs have started, I change my beneficiary?

You can change your beneficiary at any time, but the tax rules for the RMD calculation governing this type of change can be very complex.

You will need to consult a tax adviser to understand how your distribution will be affected.

Can I use it on part of my IRA?
Yes, if you split your IRA by execution of new IRA applications, adopting separate IRA trusts, and naming separate beneficiaries.

This would give you the opportunity to exercise the Stretch option, provided you haven't begun your RMD. The RMD for each IRA account would be determined separately.

What if I want to increase my payout? When you are over age 70 1/2, or when the beneficiary is taking RMDs after your death, taking more than the required amount is always permitted.

However, you can't request a smaller amount once you've started taking the RMD.

Multiple trusts, added benefits
If you want to name more than one beneficiary of your IRA, consider establishing a separate IRA trust for each one.

The trusts allow each beneficiary to receive payouts based on his or her life expectancy.

If you designate multiple beneficiaries to a single IRA, then distributions would be based on the life expectancy of the oldest one.

Congress in January 2001 has liberalized the proceeds paid to a beneficiary and increased contributions to IRAs and SIMPLE IRAs.

With the volatility that occurred from 2000 through 2002, and the latest volatility that started in 2008, it is imperative to have adequate Asset Allocation in your portfolio.

Meeting regularly with your advisor will reflect your changing short-range goals, and help to attain your retirement and long-range financial plans.

As our population ages, it is most important to not only prepare for taking care of our parents and ourselves with long-term care, but the wealth we hope and plan to accumulate must be cared for by systematic planning, review, and being aware of economic changes and tax laws that will affect values.

Remember, you want to "make a plan, then work the plan."

Jim Lentini,CLU, ChFC, IAR is a General Agent and senior partner of Lentini Insurance and Investments, Inc. LII has served Santa Clarita since 1964.


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