As financial advisors have learned in countless articles and seminars, such is the wondrous wealth that compounding can produce with a multigenerational IRA, or IRA stretchout. Dad (assumed to be older and likely to die first) builds up a tax-deferred retirement account, rolls it into an IRA and leaves it to Mom. She can take the IRA she inherited from Dad and name her own beneficiary or beneficiaries, stretching distributions over a joint life expectancy that assumes the beneficiary is 10 years younger than she is. After Mom dies, minimum distributions can be spread over the beneficiary's true life expectancy, prolonging tax deferral and allowing the account to keep growing. 

  Do stretch IRAs really work the way they do in computer-generated illustrations? Yes, in some situations. 

  "One of our clients inherited an IRA of just over $1 million," says Wil Heupel, an advisor with Accredited Investors in Minneapolis. "With a 36.7-year life expectancy, only 2.725% had to be withdrawn the first year, a percentage that increases very slowly. In the past three years, the IRA has earned 11.5%, so it has kept growing, to nearly $1.4 million. If we maintain that investment performance, the IRA balance will increase until the client has only eight years of life expectancy." 

  However, not every real-world report of an IRA is so upbeat. ''All IRA stretchout projections are based upon years of minimum distributions, which might not be the case," says Brent Brodeski, an advisor with Savant Capital Management in Rockford, Ill. "Some heirs are going to want to take the money right away, even if that means paying income tax." 

  Mark Wilson, an advisor with Tarbox Equity in Newport Beach, Calif., concurs, noting that his father died recently, leaving an IRA to be divided among four children. "Some will stretch out distributions, and some won't," he says. "Dad did not want to exercise too much control, so he left that decision up to us." The IRA was not left to a trust from which a trustee could dole out distributions. 

  Details of this IRA stretchout were handled in advance. "Fidelity is the custodian," says Wilson, "and the people there have been extremely cooperative." Nevertheless, he was surprised when he got the paperwork for the "beneficiary designation account" and noticed that the beneficiary line was stamped, "beneficiary not allowed." 

  That is, Wilson would be allowed to take minimum distributions over his 48-year life expectancy, if he wished, extending the tax deferral. 

  However, if he were to die before that period was up, the balance of the account would be paid to his estate for accelerated distributions. 

  On the other hand, if Wilson were allowed to name a beneficiary, the beneficiary could continue the stretchout over the remainder of Wilson's 48-year life expectancy. In some circumstances, the amounts involved could be substantial. 

  "I made a few calls," says Wilson, "and was told I could name a beneficiary. Apparently, this is the type of thing that's permitted but not advertised: You have to ask for it." Thus, financial advisors in such situations may be able to perform a valuable service for clients, obtaining a further beneficiary designation that many other account holders won't know is available. 

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