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Stretch Annuity

Stretch Annuity
Personal FinanceRetirement PlanningAnnuities

What Is a Stretch Annuity?

A stretch annuity (otherwise called a legacy annuity) is a annuity option where tax-deferred allowances are given to the beneficiaries, offering them greater flexibility and control over keeping up with the investment. The beneficiary in this manner has less restrictions on wealth transfer, and the person in question can receive a bigger sum of benefits stretched over a more drawn out period of time. This type of annuity is generally non-qualified, and that means that it isn't held inside of an IRA.

How a Stretch Annuity Works

Legacy annuities or stretch annuities are not offered by numerous insurers. This type of annuity can be profitable on the grounds that the beneficiary isn't troubled with paying a gigantic tax bill on their gains. This frequently can be distressing for a family that has just managed the loss of a friend or family member. The thought is that the annuity contract can be "stretched" over numerous ages rather than just a single owner or couple.

What befalls an annuity after the death of the owner generally relies upon the type of annuity plan. The owner, or annuitant, chooses the annuity type and any beneficiaries at commencement, however beneficiaries might be changed by the annuitant prior to death. There are several types of annuity payout plans. As far as some might be concerned, payment closes with the death of the annuitant, yet others accommodate payment to a spouse or other beneficiary for a really long time a while later.

Stretch versus Joint-Life Annuity

A stretch annuity is not the same as a joint-life annuity. A joint-life annuity ensures payment for both your lifetime and that of your beneficiary. Upon your death, your spouse or other beneficiary keeps on getting payments until their death. Payments to beneficiaries can be the full amount payable to the annuitant during their lifetime or a diminished amount, contingent upon the races made by the annuitant at commencement.

By stretching the annuity, the person who takes out the contract gets no payments. All things considered, lifetime income is given to the owner's beneficiary in light of the inherited contract value and the beneficiary's life expectancy when the payouts start. As per IRS rules, beneficiaries must pull out a base yearly amount in view of their life expectancy, starting in no less than one year of the original owner's death.

The tax benefit is given on the grounds that the beneficiary's tax liability is stretched over numerous years, rather than getting an inherited annuity in a lump sum, and that means the taxes are due in the extended time of distribution in view of the amount inherited and the beneficiary's tax bracket. These types of annuities are in many cases part of estate planning by wealthier families.

Features

  • Since annuity benefits can be extended to children or grandchildren, estate taxes and asset transfers can be limited.
  • Stretch annuities are unprecedented and contrast from joint-life annuities that give proceeded with spousal benefits after the annuitant's death.
  • A stretch annuity (legacy annuity) considers more straightforward wealth transfer for annuitants to their beneficiaries after they kick the bucket.