What Is It?
Extended IRA is a concept not a product. It is a way for the beneficiaries of IRAs to ease the tax burden of taking required distributions from inherited IRAs and maximizing the deferral period for the money in that account. This strategy does not guarantee returns or insulate the beneficiary from loss, including loss of principal and be aware that inflation erodes purchasing power.
The Strategy
Extend payments over the life expectancies of IRA beneficiaries using an IRS proscribed life expectancy table.
It can be created by the IRA owner using our Beneficiary Designation Form or by the beneficiary upon the death of the IRA owner using our Beneficiary Election Form. The most likely scenario for the use of an Extended IRA strategy is when a non-spouse is the beneficiary of the IRA.
Target Market
Owners of IRAs who will not need the money from this account for their own retirement needs and who want to ease the tax burden to beneficiaries and increase the tax-deferral period for the account after they die.
Beneficiaries of IRAs who would like to ease the tax burden of receiving required distributions from inherited IRAs and maximize the tax-deferral period for this inherited account.
Key Terms
- Stretch IRA – Alternate name for the Extended IRA concept
- Inherited IRA – An IRA that is now owned by the beneficiary. Also known as a beneficial IRA.
- Required Minimum Distributions (RMDs) – The minimum payment, based on life expectancy, a beneficiary must take from an inherited IRA.
- Designated Beneficiary – A living person whose life expectancy can be used to extend the required payments from an inherited IRA. The term may also apply to a properly drafted trust.
- Successor Beneficiary – A beneficiary who can take over payments if a designated beneficiary dies after starting to receive RMDs. The original IRA account owner can designate the successor or, if the owner doesn’t name one, the beneficiary can name a successor. RMDs paid to the successor beneficiary are based on the original designated beneficiary’s remaining life expectancy.
What Do I Need To Know To Use The Concept
Knowing the distribution options available to beneficiaries upon the death of the IRA account holder is the key to using the Extended IRA strategy. Use the Extended strategy to capitalize on IRA sales opportunities – both with the account holder when setting up an IRA or with the beneficiary when they’re
trying to understand their options after an account holder has died. Federal tax laws are complex and subject to change. Neither Nationwide nor its representatives give legal or tax advice. Please tax with your attorney or tax advisor to answer specific questions.
Why Do Extended IRA Business With Nationwide
- We pay death benefits, subject to the claims paying ability of the company, on beneficially owned annuity contracts provided the money is new to Nationwide or an existing Nationwide contract is rolled over to a new Nationwide contract. Please be aware that there are multiple non-annuity funding options for stretch IRAs.
- Our beneficiary designation form makes it easy for IRA account owners to implement the strategy through a restriction.
- Our beneficiary election form makes it easy for beneficiaries to understand their options, if no restriction is in place.
- Like many other carriers, we accept beneficial IRA transfers.
- Beneficial contract set-up example:
Beneficially Owned Contract Structure - Upon John Smith’s Death
Owner – John Smith, deceased FBO Mark Smith
Annuitant – Mark Smith
Successor Beneficiary – Susie Smith (Mark Smith’s Daughter) named by Mark
Please remember, no product, rider, service or strategy is suitable for all clients. It is the responsibility of a registered representative of a broker/dealer to carefully consider the client's needs, objectives, risk tolerance and overall suitability before recommending any product, rider, service, or implementing any strategy.
When evaluating the purchase of a variable annuity, your clients should be aware that variable annuities are long-term investment vehicles designed for retirement purposes and will fluctuate in value and annuities have limitations. Using an annuity to fund an IRA does not provide any tax advantages beyond those already available with the IRA.
Neither the company nor its representatives give legal or tax advice. Please consult your attorney or tax advisor for answers to specific questions.
Life insurance and annuities are issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company, Columbus, Ohio, member of Nationwide Financial®. The general distributor for variable insurance products is Nationwide Investment Services Corporation, member FINRA.
Nationwide and the Nationwide Framemark are federally registered service marks of Nationwide Mutual Insurance Company.
© Nationwide Financial Services, Inc. All rights reserved.
NFM-5186AO.4 (6/2014)
