Advisors have a special weapon when it comes to IRA plans, a way to get more out of them, and it involves the plans' beneficiaries.

The advantage of a traditional IRA comes from the tax-deferred growth it offers. The "stretch" IRA strategy, using the beneficiary's life as well, extends the lifetime of tax-deferred growth offered by the account.

A stretch IRA keeps the IRA intact and growing for as long as possible after the IRA’s owner dies, said Sarah Brenner, director of retirement education for Ed Slott and Company at the firm’s Instant IRA Success Workshop in Las Vegas earlier this month. In essence, it allows the IRA to keep growing throughout the lifetime of the beneficiary.

“The stretch IRA is not a type of IRA, like traditional, Roth and stretch,” said Brenner. “Instead, it’s a strategy, a way to use the rules in the tax code to keep the IRA intact and growing for as long as possible for generations. That’s the power of the stretch IRA.”

By using the stretch IRA strategy, beneficiaries can spread required post-death minimum distributions across their own life expectancy using the IRS’s single life expectancy table for inherited IRAs.

For example, if a client dies and has named his or her 14-year-old daughter as the beneficiary of a $600,000 IRA, the daughter will be able to stretch required minimum distributions (RMDs) across her 69-year life expectancy.

The younger the client, the higher the life expectancy and thus the lower the RMD, which would allow more funds to remain in the IRA over time. Advisors and clients might consider using the youngest potential non-spouse heir as an IRA beneficiary to maximize the potential advantages of the stretch strategy.

Yet many advisors—and retirement savers—believe that the stretch IRA is no longer an option, said Brenner.

“Paul McCartney is kind of like the stretch IRA,” said Brenner. “Both are always surrounded by rumors of their impending death.”

Regardless of the age of the original account holder, any IRA can be a stretch IRA if advisors and retirement savers keep a few key rules in mind.

One, a living human being must be named as an IRA beneficiary in order to stretch out required distributions—a client leaving the IRA to an organization or estate eliminates the possibility of heirs using a stretch IRA. The heir must be named as a beneficiary on the account’s beneficiary form.

“A lot of people use their estate as the beneficiary, but that’s a mistake,” said Brenner. “To get a stretch IRA, you need life expectancy. If you have clients that have named their estate as the IRA beneficiary, it’s not too late—they can change their beneficiary.”

Brenner pointed out that discussing account beneficiaries is an opportunity for advisors to engage with and add value for their clients. Life events like divorces, marriages, births, deaths and adoptions should trigger a review of beneficiary designations.

Naming a beneficiary also helps heirs avoid probate, claims and other legal obstacles.

An inherited IRA must also be properly titled so that it retains the original IRA owner’s name while also indicating it was inherited by the beneficiary.

“What will blow up a stretch is putting the IRA in the name of the beneficiary alone. It’s really important you get the titling right,” said Brenner.

There is no established format for the account title of a stretch IRA, said Brenner, but she did give an example: “John Smith IRA (deceased 11/27/18) F/B/O John Smith, Jr., Beneficiary.”

IRA beneficiaries must not take a full distribution from the account if they wish to take advantage of the stretch IRA strategy, said Brenner.

“A lot of times, people don’t know a lot about how IRAs work. They act first and then learn about it later,” she said. “That’s a problem. Once they take a distribution, that’s the end of the road. No rollovers are possible. It’s a mistake that can’t be fixed, and the non-spouse beneficiary gets hit with a big tax bill.”

However, missing an RMD will not jeopardize an heir’s ability to use the stretch IRA strategy, said Brenner. If an RMD is missed, the beneficiaries would still likely have to pay the 50 percent excise tax penalty on the distribution, but they can still calculate their RMDs using their own life expectancy.