Stretch Your IRA Benefits

Financial planning is all about saving and investing for your future. One goal that all individuals share
when saving for retirement is the hope that by investing today, tomorrow’s future will bring financial
freedom. Even though you work hard and may spend a lifetime saving for retirement, once you reach age
70?, the Internal Revenue Service (IRS) requires that you start taking money from your Individual
Retirement Accounts (IRA) each year, whether you need the income or not.. This mandatory withdrawal
is called the required minimum distribution (RMD). With a little planning however, not only will you be
able to provide for your own retirement benefits during your lifetime, but you can also provide income to
your heirs: thus leaving a legacy once you are gone.

Final RMD Regulations
In April 2002, the IRS issued the Final Minimum Required Distribution Regulations. Some of the major
changes included simplified RMD calculations for IRA owners and more flexible distribution options
available to beneficiaries.

The final regulations (effective January 1, 2003) allow you to use one universal life expectancy table, which
in essence has simplified the calculations to compute your annual RMD payments. This new IRS Uniform
Lifetime Table assumes the IRA owner has a beneficiary who is exactly ten years younger than the owner,
even if there is no beneficiary named. In using the revised life expectancy table, the amount you are
required to take from your retirement account is reduced. The only exception to using the Uniform
Lifetime Table is if an IRA owner has a spouse, who is the sole beneficiary and is greater than ten years
younger, then the Joint Life and Last Survivor Table will be used.

Beneficiary Elections and Options
Due to these tax law changes, IRA owners now have more freedom in selecting a beneficiary, or changing
beneficiary elections at anytime, without limiting the IRA owner’s RMD calculation options. Therefore, it
is no longer mandatory to designate your beneficiary by your required beginning date (RBD), which is
April 1 following the year you turn age 70?. However, for estate planning purposes, it is advised that you
make proper beneficiary designation(s) for all of your retirement accounts, as well as periodically review
and update the beneficiary information on file. The general rule for IRAs is if the IRA owner fails to
designate a beneficiary or the beneficiary and contingent beneficiaries designated predecease the IRA
owner, the beneficiary of the IRA will be the IRA owner’s estate. Please refer to the plan document of the
financial organization that maintains your IRA.

In addition, the tax law changes related to beneficiary options after the IRA owner’s death now provide
beneficiaries with greater ability to ”stretch“ out required distributions based on his/her own life
expectancy.

Distribution Strategy
By taking only the minimum required amount from your IRA, you can stretch out your retirement savings.
You pay tax only on the amount withdrawn each year while the remaining part of your IRA can continue
to grow tax-deferred. Also, by taking the proper steps in making your beneficiary elections, you may be
able to ”stretch“ your IRA distributions to your heirs over their lifetime.
Please contact your Baird Financial Advisor to discuss how financial planning can help you ensure you,
and your beneficiaries, can receive the most benefits from your IRA.

Article provided by Robert W. Baird & Co. with the authorization of its author for Evan Guido, Vice President, Financial Advisor at the Sarasota office of Robert W. Baird & Co., member SIPC. The opinions expressed are subject to change, are not a complete analysis of every material fact and the information is not guaranteed to be accurate.

Evan R. Guido
Vice President of
Private Wealth Management

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