The economic principles that make deferring distributions from a qualified plan or IRA advantageous during the participant's lifetime apply equally well after the participant's death. In planning for the distribution of qualified plans and IRAs after death, structuring the beneficiary designation and distribution options to maximize income tax deferral should be a primary objective. The difficulty is how to achieve estate tax minimization and deferral at the same time. One planning strategy that you may consider is a "stretch."
"Stretch" Distributions and IRAs
The "stretch" is not a financial product, but a planning strategy that allows for the deferral of tax on the assets accumulated in the qualified plan or IRA. This is done by allowing the required minimum distributions to be stretched out over the owner's lifetime and possibly the beneficiaries' lifetimes, before all the assets are required to be distributed. Thus, a "Stretch" Distribution or a Stretch IRA is simply a qualified plan or IRA that is eligible to be distributed over a long period of time after death. For income tax deferral purposes, you want post-death distributions from a qualified plan or IRA to qualify for a Stretch Distribution or as a Stretch IRA. This is accomplished by making sure that the plan or account is payable at the participant's death to a Designated Beneficiary.