Taking the cue from an individual IRS case, banks and brokerages are starting to tailor IRA contracts to fit the stretch profile so beneficiaries can name their own beneficiaries, allowing for longer compounding of income tax-deferred growth. The trend of extending IRAs dovetails with a boom in account balances. With more to protect, people are looking for ways to minimize or delay the tax burden, said Mary Grimm, a certified financial planner in Pittsburgh. With the growth in people's wealth due to stock market growth, people are pushing up against that inheritance tax. In fact, reducing the estate tax is a hot topic from Capitol Hill to the campaign trail.
Many states tack on their own estate taxes.
Grimm said many of her clients name grandchildren as beneficiaries if they and their spouses don't need the money. Under normal IRA rules, if the son died two years after his mother, the IRA is pushed out of its shelter and taxed. Levine said the stretch feature allows people to dodge the more expensive process of drafting a trust, but it's not for everyone. Consumers who can't afford to rely on required annual payments and those who are expecting to bump into a higher tax bracket may not be well suited, she said. Most people set up these accounts and they put money into it and focus on the rates of return inside of it, but they don't necessarily focus in on the decisions surrounding it.