To understand how the stretch IRA works, think of the client's estate plan as involving three generations. The client (and the client's spouse, if married) is the first generation. The client's children, nieces or nephews are the second generation; and their offspring are the third generation. As long as each beneficiary takes minimum distributions under the annual recalculation method, the stretch can easily occur into the second and third generations.

Stretch IRAs allow the retiree's beneficiary to name his or her own beneficiary upon the retiree's death. Current law limits the chain of beneficiaries to this point — the third generation (second level of beneficiary). At the death of the third-level owner, all the assets in the IRA must be distributed.

The concept may sound easy, but implementation can be difficult. Advisers are advised to review Ohio National's Stretch IRA Brochure (Form 8946) and IRA Replacement Strategy (Form8947) for more technical information and examples of the Stretch IRA concept, and alternatives to the Stretch IRA concept.

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