Question

Which of the following statements regarding a stretch IRA is CORRECT?

A) It allows the IRA owner's beneficiary to name his own beneficiary upon the owner's death.
B) It extends or stretches the period of tax-deferred earnings within an IRA possibly over a decade.

Answer 1

A Stretch IRA extends the tax-deferred status of inherited IRA funds by allowing a non-spouse beneficiary to take distributions over their own life expectancy, thus extending the period of tax-deferred growth.

Step-by-step explanation:

A Stretch IRA is a strategy that extends the tax-deferral benefits of an Individual Retirement Account (IRA) passed to a non-spouse beneficiary. Upon the death of the IRA owner, the designated beneficiary can take distributions over their own life expectancy, thereby stretching the life of the IRA and the period of tax-deferred growth. Statement B is CORRECT: "It extends or stretches the period of tax-deferred earnings within an IRA possibly over a decade." Statement A is incorrect because with the passage of the SECURE Act in December 2019, designated beneficiaries are generally required to withdraw all assets of an inherited IRA within 10 years following the death of the IRA owner, and they are not allowed to name their own beneficiaries.