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How Do I Make Sure My Children Can Utilize the Stretch IRA?

By Sarah Brenner and Beverly DeVeny

Another edition of The Slott Report Mailbag examines the power and process behind a stretch IRA and answers a tricky question about using the cost basis of employer stock to satisfy required minimum distributions (RMDs). As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure.


Ed and team, 

I was going to do a stretch IRA for my children. I am 78 and my wife is 75.  We started RMDs several years ago. My financial advisor said we did not need to do a stretch because since we had already started receiving RMD, so the children could automatically receive stretch withdrawals at the time of our demise. My wife is the primary beneficiary with the two children being secondary beneficiaries. I hate to question his statement since he has been a CFP for many years.

What do you think?

Alvin Purdy

First of all, I think you should question anything you don’t understand, are not sure of, or that doesn’t sound right to you without regard for the experience level of the advisor.

Now, on to a stretch IRA. This is a process, the result of a series of events. It has nothing to do with your age or whether or not you are taking RMDs. The most common scenario is husband names wife as the IRA beneficiary, husband dies, wife moves the funds to her own IRA and names the children as her beneficiaries. At the wife’s death, the children set up their individual inherited IRAs and they can stretch distributions over their life expectancies. The most important things are that beneficiaries be named on the IRA beneficiary forms and that the children establish their inherited IRAs and take their first RMDs by December 31 of the year after the year they inherit.


I turned age 70 ½ this year, and I am expecting to take a lump-sum distribution of my 401(k), transferring it to an IRA, except for employer stock. The stock will be placed in-kind into a taxable account. Can the cost basis of the stock, which is taxable immediately, be used to satisfy the RMD for both this year and next year if the lump-sum distribution occurs next year before April 1?

Yes, the cost basis of the employer stock can be used to satisfy any outstanding RMDs for the employer plan only. The cost basis used to satisfy the RMDs can be either pre-tax or after-tax amounts.