The 2001 change to the MRD rules gave rise to an estate planning concept called the stretch IRA. The idea behind a stretch IRA is to preserve qualified plan assets — and their favorable tax treatment — for the benefit of second and even third generation heirs. With this planning strategy, IRA benefits are stretched over a longer period, reducing current income taxes and increasing the long-term benefits to family members (thanks to compound growth that may exceed the amount distributed). In other words, as the family grows, so does the total value of the IRA.

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The stretch IRA combines the power of compound interest with tax-deferred growth over two or even three generations. By stretching IRA distributions over the lives of the owner, spouse, children and grandchildren, the client can maximize the power of tax-deferred earnings, creating a long-lasting guaranteed stream of income for the family.

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