What is a Nonqualified Stretch, and How Does It Work?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Retirement planning is a crucial part of financial management, and several options are available to save for retirement. A nonqualified stretch is one of the strategies that have gained popularity in recent years. But what exactly is a nonqualified stretch, and how does it work? This guide will discuss this retirement savings strategy in detail, including its benefits, limitations, and how it can fit into your overall retirement plan.

What is a Nonqualified Stretch?

A nonqualified stretch is a retirement savings strategy that allows individuals to pass on their IRA account or 401k to their beneficiaries upon death. It is called a “nonqualified” stretch because it is not subject to the same tax-qualified rules as a traditional IRA or 401k.

What Is A Nonqualified Stretch

How Does it Work?

To set up a nonqualified stretch, an individual must name a beneficiary to their IRA or 401k account. After the individual’s death, the beneficiary can take the required minimum distributions (RMDs) over their lifetime or a lump sum payment. The nonqualified stretch allows the beneficiary to “stretch” the distributions over their lifetime, providing potential tax benefits.

Benefits of a Nonqualified Stretch

  • Tax benefits: With a nonqualified stretch, the beneficiary can take distributions over their lifetime, potentially reducing the tax burden.
  • Flexibility: The beneficiary can take distributions as needed rather than being forced to pay a lump sum.
  • Legacy planning: A nonqualified stretch allows individuals to pass on their retirement savings to their heirs, providing a legacy for future generations.
Non Qualified Stretch Annuity

Limitations of a Nonqualified Stretch

  • No contribution limits: Unlike a traditional IRA or 401k, a nonqualified stretch has no contribution limits.
  • No tax deduction: Contributions to a nonqualified stretch are not tax-deductible.
  • Potential tax implications: While a nonqualified stretch can provide tax benefits, there may be tax implications for the beneficiary, depending on their tax bracket and the distribution amount.

Related Reading: Stretch IRA

Next Steps

In conclusion, a nonqualified stretch can effectively pass on retirement savings to future generations while taking advantage of potential tax benefits. However, it’s essential to understand the limitations and potential tax implications before jumping in. Consulting with a financial advisor is highly recommended as any financial solution. A professional advisor can provide personalized direction that helps you make the decisions that best fit your financial situation. If a nonqualified stretch could be suitable for you, why wait? Request a free quote today and find out how your retirement savings goals could become achievable.

Nonqualified Stretch

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Frequently Asked Questions

Who can set up a nonqualified stretch?

Anyone with an IRA or 401k account can set up a nonqualified stretch by naming a beneficiary.

Can a non-spouse beneficiary do a nonqualified stretch?

Yes, a non-spouse beneficiary can do a nonqualified stretch.

What happens if the beneficiary dies before the account is depleted?

If the beneficiary dies before the account is depleted, the remaining balance can be passed on to the beneficiary.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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